Insights 
VT 
China’s top copper smelters have agreed to reduce production by over 10% next year. This decision arises from the ongoing drop in treatment and refining charges (TC/RC), fees paid for processing copper ore. Declining TC/RCs, where smelters now pay premiums for raw materials, are becoming unsustainable.
Last year, discussions about production cuts occurred due to industry margin pressures, but no agreement was reached, and copper production continued to increase, reaching a peak in June. The fear of supply shortages is now materialising, contributing to the rise in copper prices. On Friday, prices rose by around 2% and reached a record high of approximately $11,300 per ton.
The actual impact of the production cuts is still uncertain, as data showing these changes has yet to emerge. Rising copper prices make it tempting for smelters not involved in the cuts to increase production. Consequently, there is ongoing uncertainty about how much copper production in China will eventually decrease.
The recent agreement by China’s major copper smelters to cut production by over 10% is now the primary driver in the market. This decision follows a collapse in treatment and refining charges, making it unprofitable for them to process raw ore. With copper prices already surging past $11,300 per ton, the market is pricing in a significant supply disruption from the world’s largest producer.
This supply-side news is happening as inventories remain critically low and demand signals are firm. Recent data showed LME copper stockpiles falling below 70,000 tonnes, a multi-year low, while China’s Caixin Manufacturing PMI for November 2025 surprised to the upside at 51.2. This combination of shrinking supply and solid demand creates a powerfully bullish backdrop for the metal.
For derivative traders, this environment suggests positioning for continued price strength in the coming weeks. We see value in purchasing call options on copper futures to capture further upside potential from this supply shock. A strategy like a bull call spread could also be effective for managing premium costs while maintaining a bullish bias.
However, we must remember these production cuts are just an agreement and not yet reflected in output data. The record-high prices create a powerful incentive for smaller, independent smelters to increase their own output, potentially offsetting the cuts from larger players. Therefore, we will be closely watching the next official production data out of China.
We saw a similar price dynamic back in the 2020-2021 period, when supply disruptions and a surge in demand led to a sharp, sustained rally. That period was marked by high volatility, and we expect the same now. This means implied volatility on copper options will likely continue to rise, reflecting the heightened uncertainty and potential for large price swings.
