After it was diagnosed in late 2019 in Wuhan, China, the capital city of Hubei Province, the coronavirus quickly spread to other Chinese cities. The outbreak was declared a public health emergency by the World Health Organization on January 30, and there were more than 28,000 diagnosed cases at that time. In response to the outbreak, China took measures to contain the spread of the virus. All the cities in Hubei Province were quarantined. Trains and flights were canceled with (several) checkpoints set up on the roads. As a result, land freight, especially interprovincial transportation, has been significantly affected.
Unlike copper fabricators, smelters and refineries did not stop operating over the Chinese New Year, a national holiday. However, this does not mean there are no risks to smelter production. The two main concerns center around the raw material freight movement and acid sales.
The Daye smelter and refinery, which is located in Huangshi, Hubei province, produces 500,000 metric tons per year (mt/y) of refined copper. As all the cities in Hubei Province have been quarantined, Daye is the largest smelter of concern among the Chinese operations. Concentrates are typically shipped to Huangshi Port along the Yangtse River and then trucked to the smelter. It is taking longer for concentrates to reach the smelter, but there has been no impact on its production. There has been a general loss of efficiency across the concentrates supply chain from ports to smelters due to restrictions on movement and extension of holidays for couriers, customs brokers, customs, etc. Delay in delivery of concentrates is also being experienced by many other smelters in China.
According to WoodMac’s estimates, for every ton of primary copper production, Chinese copper smelters are producing an average of 3.6 tons of sulphuric acid. It is critical for copper smelters to sell and ship the acid before acid storage is full. Hubei is the largest phosphate fertilizer producer in China, an important sulphuric acid consumer. Hubei accounts for roughly 20% of total sulphuric acid consumption in China, which it sources from local smelters as well as those in neighboring provinces. Acid inventories at smelters are rising. WoodMac cited one major primary smelter, saying, “if the acid disposal situation does not improve over next few weeks, we will have to cut the utilization rate by 30%.” Other smelters have expressed similar views.
As pressure on acid storage mounts, Guixi, the largest smelter in China, started to reduce the amount of concentrate charged into the furnace in the first week of February. Due to the high inventory of acid and difficulties obtaining some other consumables, Tongling Nonferrous started to reduce utilization rates at its smelters. WoodMac believes utilization rates have been reduced to 70%-90% at these smelters. How long production cutbacks will last or whether there will be further curtailments will depend on when the state of emergency, due to the virus, will be revoked.
Elsewhere in China, one of the major primary smelters in east China has had significant difficulties obtaining imported concentrates trucked to site from the port. Due to a lack of concentrate, the smelter has started its maintenance ahead of schedule. At another inland smelter, purchased concentrate cannot be delivered. Currently, this smelter is relying on the inventories on site, but they seem optimistic that the transportation issues can be solved before production is impacted.
At press time, smelters cutting production had a total primary capacity of 2.7 million mt/y, with another 1.7-million-mt/y primary smelting capacity at risk. According to the current situation, the primary production loss is more than 60,000 mt contained copper in February, assuming smelting capacity at risk all maintain full operation. Going forward, if the epidemic can be brought under control in March, the loss of production could be partially compensated for over the rest of year. But if the state of emergency continues, the smelters will have to further reduce utilization rates and more smelters will have to cut production.
This article was adapted from a report issued by WoodMac’s copper team.
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