Indian refiners set to face negative refining charges amid global copper shortage

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The growing shortage of copper concentrates, often dubbed the "new oil", could squeeze profit margins of companies running copper smelters such as Adani Group’s Kutch Copper Ltd and Hindalco, according to analysts.

Smelters are facilities where mined metal is turned into usable metals using high heat and chemical reactions.

Margins under pressure

The year 2025 began with an extraordinary shortage of copper, leaving smelters across the world scrambling for supplies. The persistent shortage has left smelters so desperate that they are paying the miners for converting their concentrates into refined metal, rather than receiving it from them.

The so-called treatment and refining charges (TC/RC) were once a reliable source of income for smelters. However, the ongoing shortage has brought these charges to zero and negative in some cases. Negative TC/RCs mean smelters are effectively paying more for the copper ore they are buying than the value of the copper it contains.

According to media reports, some suppliers have proposed negative charges, while Chinese smelters have agreed to zero charges. Indian smelters, which are largely dependent on imports of copper concentrates, too, will feel the heat, threatening operational viability, according to analysts.

"As standalone smelters’ profitability is closely tied to TC/RC levels, a prolonged period of subdued or negative rates could materially compress their margins," said Sumit Jhunjhunwala, Vice President, Sector Head, Corporate Sector Ratings, ICRA Ltd.

The imbalance looks unsustainable, particularly if smelters accept a negative charge for the mid-year talks, which set the price for much higher volumes than the spot market, Reuters reported last month, citing analysts.

"For Hindalco, it will be a 25–30 percent impact for copper EBITDA. The impact of lower TC/RC margins was being offset by higher realisations from copper rods, which helped maintain performance. Over the past few quarters, we’ve seen Hindalco’s copper segment contribution improve despite weak TC/RCs. As per our last interaction with management, it will improve over the next few quarters. But these 2–3 quarters will probably get impacted," said Tushar Chaudhari, Research Analyst at PL Capital.

Indian smelters vulnerable

Heavy reliance on external sources makes Indian smelters vulnerable to global supply disruptions. Key suppliers like Chile, Peru, Indonesia, and Zambia are grappling with a series of recent challenges, increasing the risk of shipment delays and price volatility.

"With refining fees compressed and global copper prices remaining largely range-bound, smelters are increasingly reliant on by-product revenues to maintain margins," said Yash Sawant, Commodity Fundamental Analyst at Choice Broking.

"Indian Smelters with long-term benchmark contracts may have some cushion. However, new contracts for 2025 are being signed at much lower rates. That being said, Hindalco reported very healthy results due to strong domestic sales and higher by-product realizations," said Sanket Singh, Partner, Grant Thornton Bharat.

In India, both Hindalco and Adani operate a 0.5 million tonne (MT) smelting capacity. India's refined copper consumption surged more than 0.7 MT in 2023 and 2024, driven by extensive government infrastructure initiatives, a significant shift towards renewable energy, and growth in the automotive and electric vehicle sectors, according to the Centre's copper vision document.

"To address the ongoing challenges, the Indian government is rolling out measures aimed at improving long-term supply security, offering capital incentives, encouraging foreign miner participation, and incorporating copper-focused provisions into trade agreements with resource-rich nations. However, until these efforts are fully realised, Indian refiners are likely to continue facing margin pressures, delayed returns, and intermittent trade disruptions," Sawant added.