China copper miners gain as smelter margins come under pressure

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China copper miners vs smelters

Highlights

The World Bank now forecasts copper averaging $13,000 a tonne in 2025, 18 percent above its April estimate.
Zijin Mining's copper gross margin rises from 65 percent to 71 percent year-on-year as copper prices outpace costs, with S&P Global expecting continued first-quartile cost positioning.
Despite operating cash flow nearly doubling in H1, Zijin Mining trades at just under eight times forward earnings, a discount to peers like Glencore and Southern Copper.

China's copper chain splits between mining gains and smelting strain

As reported by the Financial Times, the World Bank now estimates copper will average $13,000 a tonne next year, 18 per cent above the forecast it made in April, underscoring how the rally is reshaping profitability across the sector.

China sits at the centre of that shift as the world's largest copper consumer and a major force in both mining and refining. According to S&P Global, the country's share of copper production roughly doubles between 2016 and 2024 as large mining groups expand overseas, while China also holds more than half of global refining and smelting capacity.

That market backdrop favours miners because selling prices are rising faster than unit costs. In the first quarter of last year, Zijin Mining sells copper concentrate at an average of more than RMB60,000 per tonne against unit costs of about RMB21,000, implying a gross margin of 65 per cent; a year later, that rises to 71 per cent. S&P Global expects Zijin to remain in the first quartile of the global cost curve for copper and gold, a position that supports stronger margins than higher-cost rivals.

Cash flow strength highlights investor discount

Smelters are facing the reverse trend because they must buy copper concentrate and depend on treatment and processing fees for profitability. The International Energy Agency says the annual benchmark treatment charge falls to zero this year, while spot charges turn negative as new smelting capacity outpaces mining output.

For Chinese miners, the price boom is already feeding through to cash generation. In the first half of this year, Zijin's operating cash flow nearly doubles, giving the company more capacity to fund existing projects and pursue mine acquisitions.

Even so, the group trades at just under eight times forward earnings, below international peers such as Glencore and Southern Copper despite its scale and reserves. That gap suggests investors still value the company more like a China-focused producer than a global mining group, leaving the main equity opportunity in companies best positioned to capture value from the copper upcycle rather than in a simple bet on higher metal prices.

China’s stance on rare earth exports to Europe has signaled that shipments can continue even if the temporary U.S.-China trade truce is not extended beyond January. Our earlier coverage noted Beijing’s willingness to keep approving export licenses and use a “green channel” mechanism as EU-China talks focus on maintaining stable supplies of critical materials amid broader trade negotiations.

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