ELECTROLYTIC COPPER INDUSTRY IN CHINA, 2017-2021

Copper extraction refers to the methods used to obtaining copper from its ores. The
conversion of copper consists of a series of chemical, physical, and electrochemical processes.
Methods have evolved and vary with country depending on the ore source, local environmental
regulations, and other factors.
The processing techniques depend on the nature of the ore. If the ore is primarily sulfide copper
minerals (such as chalcopyrite), the ore is crushed and ground to liberate the valuable minerals
from the waste ('gangue') minerals. It is then concentrated using mineral flotation. The
concentrate is typically then sold to distant smelters, although some large mines have smelters
located nearby.Copper applied in industries can be mainly classified into electrolytic copper
which is used in appliance industries for manufacturing special alloys, electrical wires whereas,
refined copper is used for manufacturing other alloys, copper pipes, copper plates, axis, etc.
According to statistics from the International Copper Study Group (ICSG), in 2014 the world's
20 largest copper refineries had a combined capacity of over 10 million metric tons or over 35
percent of total world copper refining capacity. Four of the five largest refineries - and 10 of the
top 20 - are located in mainland China. The five largest, alone, have a combined capacity of
3.25 million metric tons, or about 12 percent of global capacity. Three of the 20 largest copper
refineries are owned by Chilean state-owned copper giant Codelco. These three facilities have a
combined annual capacity of 1.5 million metric tons.
Although copper prices have fallen by over 50% since they reached a peak in 2011, Chinese copper
smelters have not reduced the pace of capacity expansion, thanks to historically high treatment and
refining charges (TC/RCs) over the same period.

Despite excess smelting capacity and progressively tighter concentrate markets, the Chinese
smelting industry to continue growing during the next four years. In fact, there is potential for
even higher growth rates than we currently expect in our base case scenario, due to the short lead
times associated with the development of new smelter projects and changes in project
status.There are several reasons for this situation. First, there is room for China's cathode
self-sufficiency rate to increase further. Even though China has been the biggest producer of
copper cathodes in the world for several years, it still needs to import between 30-40% of its total
cathode consumption every year, which means that government support, in the form of low-cost
loans, environmental approval and access to land, among other, is readily available for smelters.

China's copper smelting capacity has been increasing since the early 2000s and the country has,
by far the largest smelting capacity in the world. By the end of 2106, the production capacity of
refined copper was 10.80 million tons, twice that in 2006. The big growth in the smelting
production capacity drives the production volume of electrolytic copper in the country. The
output volume of electrolytic copper grew from 2.925 million tons in 2006 to 8.436 million tons
in 2016, with the CAGR reaching 11.2% during 2006-2016.

With further expansion of China's copper smelting capacity, we expect the ratio of combined
TC/RC to copper price is likely to fall in the medium term. More smelters are built in inland
region, which will incur high freight cost and face downside risks particularly with a potential
oversupply in China's copper smelting industry. On the other hand, with recent development,
BBF smelters can be scaled up and some may be built outside China in the future

According to the researcher, China largely relies on raw material import as the largest
consumer of copper. The copper import volume increases fast in recent years. However, the
degree of self-support of electrolytic copper keeps growing as well. Different from other metal
smelting industries, the production capacity of copper smelting is not in surplus. Actually, the
supply does not meet the demand. Electrolytic copper is largely imported to meet the domestic
demand.