Amid global copper supply chain upheaval, security demands focus

On the surface, the $US270 billion global copper trade appears to be in rude health. Prices for the metal essential for data centres, decarbonisation and defence technologies are at near record highs. An urgent scramble for copper assets is underway – even prompting mining majors Rio Tinto and Glencore, the most unlikely of partners, to consider a merger early this year.

In the end, the exuberance wasn’t quite that irrational, but the bull market mood persists. The world’s largest copper producer, BHP recently generated more revenue from copper than iron ore (Opens in new window), a prospect considered unthinkable only a few years ago. BHP’s profit margin on copper was 66% in the half year to December 2025 (Opens in new window).

Many expect the boom to continue. The Australian Department of Industry, Science and Resources’ Office of Chief Economist expects Australian copper exports to grow by 23% (Opens in new window) over the next two years. Meanwhile, S&P Global projects that demand for copper could grow by 50% by 2040 (Opens in new window), surging from 28 million metric tons in 2025 to 42 million metric tons by 2040.

But something is not quite right in the copper game.

Major distortions are emerging in the global copper supply chain – distortions that could quickly become geopolitical chokepoints. Despite unprecedented high prices, the smelting and refining segment of the supply chain is being crunched. Refining and treatment charges – fees that smelters are paid to process copper – are at all-time lows, even negative – to the point that smelters are paying to process copper.

How has this happened in such a buoyant market? China has become the dominant player in global copper smelting. According to the International Energy Agency (Opens in new window), “these lows have been driven by a surge in smelter capacity additions from China, which has significantly outstripped growth in copper concentrate production, sharply weighing on smelter fees.” Chinese smelters – mostly state-owned and heavily subsidised – are driving global competition to the wall. Since 2005, China has accounted for over 90% of growth (Opens in new window) in copper smelter output.

This trend, underway for two decades, has accelerated significantly since 2020. Six years ago, western and Chinese smelters were all operating at an 80% utilisation rate. Today, the International Energy Agency (Opens in new window) estimates that Chinese smelters operate at a utilisation rate of close to 85%, while western smelters have slipped below 70%. Smelters outside China are not only reducing production but are even closing. Others including in Australia have required government bailouts to keep operating.

Meanwhile, Chinese smelter output is strongly increasing. S&P Global reports (Opens in new window) that Chinese smelters now buy nearly 70% of globally traded copper concentrate, up from 43% a decade ago. All the major copper exporting nations are increasingly reliant on the Chinese market. Given the current scale of decline in western smelter output, and the scale of growth in Chinese smelter production, it is plausible that China will be purchasing close to 80% of traded copper concentrate within five years. That will deliver China serious market (and coercive) power in its negotiations with the copper mining nations and companies, something it is demonstrably willing to use.

Global copper supply chains are going to look very different. Over recent years, much of the focus of concern about Chinese dominance of the minerals sector has been in the rare earths sector. Here, China established near total dominance in processing and refining while western governments turned a blind eye. In the copper game, which is many orders of magnitude larger, more economically significant, and arguably more geopolitically consequential, similar dynamics are playing out.

According to the Mercator Institute for China Studies Trade Dependency Database (Opens in new window), the number of products China sourced mainly from the US and/or the EU halved from 351 in 2000 to 177 in 2022. In contrast, by 2022, the US and the EU were dependent on China for the import of 953 product categories, three times more than at the turn of the millennium. We will likely add refined copper to that list soon.

The Trump White House (Opens in new window) has already conceded “a single foreign country dominates global copper smelting and refining.” Some will argue western nations are still home to more than half the world’s copper resources and that will give them leverage with China. That only holds if copper miners have an alternate market to sell into. Keeping western smelters going won’t be easy. As Rio Tinto told the US Commerce Department (Opens in new window) last year: “China builds smelters up to 500% cheaper and at least a year faster than any other country in the world…This advantage is supported by low or zero rate financing from state-owned or supported banks, debt assistance and other measures…This environment makes it virtually impossible to invest in new smelter capacity or existing smelter upgrades.”

The key question is whether western miners and smelters can work closely together to keep a diverse copper smelting market alive for longer. That might involve trimming some miners’ margins, but the trade-off may be necessary to slow Beijing’s march toward a virtual monopoly on the global copper concentrate trade. National security experts might surmise that slowing Chinese dominance of the trade in one of the metals most critical to defence technologies may be worth a thought.