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Commodities

Coronavirus exposes China's copper industry to new risk

Smelters are running out of space to store caustic sulfuric acid byproduct

A worker unloads copper at a Chinese factory. Supplies of sulfuric acid -- a byproduct of the smelting process -- will continue to rise as China increases domestic production of the metal.   © Reuters

TOKYO -- The Chinese copper industry, stung by a nationwide economic slowdown due to the new coronavirus, has been forced to store vast amounts of sulfuric acid that is produced as a byproduct of the smelting process then normally sold.

The problem has become so acute that smelters may have to curb operations if they run out of space to store the dangerous and highly corrosive substance.

Structural changes in China, the world's largest copper consumer, have given rise to a large domestic copper industry. The country smelted 6.4 million tons of the metal in 2018, up 7% from the previous year, according to the World Bureau of Metal Statistics. This marked a 2.6-fold increase from the 2.5 million tons in 2008.

While ramped up domestic production has added value to the country's copper ore, it has also exposed copper producers to the fluctuations of the international metals market.

Three-month copper futures on the benchmark London Metal Exchange plunged to $5,525 per ton on Feb. 3, their lowest mark since May 2017. Copper's descent was triggered by the coronavirus outbreak in late January, as slowing economic activity weakened demand for the metal. Since then, prices have firmed up and are now hovering around $5,600.

The rapid recovery was driven largely by concerns over a decrease in copper ingot production, as well as buybacks following the price plunge and government measures to jump start the stalled economy.

Manufacturing in China has been paralyzed since the outbreak of COVID-19. Wuhan and surrounding Hubei Province remain in lockdown while port operations in coastal areas have slowed to a crawl. And transportation has been reduced to a trickle, so much so that smelters may eventually be unable to procure raw materials.

Lurking in the background are the vast stocks of sulfuric acid building up at smelters, who mostly sell the byproduct to fertilizer manufacturers -- a sector that is suffering a major slowdown due to the coronavirus crisis.

Sulfuric acid is made from sulfur dioxide gas, which is generated when copper is extracted from concentrates. British research consultancy Wood Mackenzie estimates that China produces about 3.6 tons of sulfuric acid per 1 ton of smelted copper, most of which is sold to fertilizer plants.

The acid is a biological and environmental hazard and must be stored in tanks before being shipped. But massive disruptions to the country's transportation network mean the acid cannot go anywhere, which could cause copper smelting to stop until the acid is shipped or more storage is made available.

This has heavily skewed supply and demand, forcing some smelters to try to offload their stocks at below market price. Still, buyers are "unlikely to come forward" until demand from fertilizer makers picks up, said Takahiro Furukawa, a senior official in the nonferrous metal materials division of trading house Marubeni.

The China Sulfuric Acid Industry Association said sulfuric acid production increased 1% in 2018 from the previous year to 96.9 million tons. This figure includes 35 million tons from smelting plants, up 6% over the same period.

"Copper smelting in China is growing regardless of market trends for sulfuric acid," said Yasuhiro Yamamoto, research chief at the Sulfuric Acid Association of Japan.

According to Furukawa and many experts, China will continue to increase smelting to add more value to the country's mineral resources, which means a continued glut of sulfuric acid -- even after manufacturing recovers and transportation begins moving normally.

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