China’s main metals association has urged the government to impose limits on new Copper, Zinc, and Lead smelting projects. This comes as the country experiences growing domestic competition and low processing fees, with overcapacity threatening market stability.

The China Nonferrous Metals Industry Association has proposed to restrict new Copper projects due to record-low treatment and refining charges. Implementing these measures would result in China’s most notable market intervention since the capping of aluminium production in 2017.

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Given the proposal from China’s metals association, we see a potentially significant bullish catalyst for copper prices in the coming weeks. Any official move by Beijing to curb smelting capacity would directly tighten the future supply of refined metal. This news arrives as spot treatment charges for copper concentrate have already collapsed, falling below $10 a tonne in October 2025, signaling extreme stress among smelters.

The market backdrop reinforces this potential price pressure. We have been tracking how combined LME and SHFE copper inventories have fallen by nearly 30% since mid-2025, now sitting at levels not seen since the post-pandemic recovery period of 2022. This existing tightness in physical supply means any disruption from China, the world’s largest refiner, would have an amplified effect on global prices.

We must remember the precedent set back in 2017 when Beijing capped aluminum production. That supply-side reform triggered a powerful rally, with aluminum prices surging over 30% in the months following the announcement. Traders should view this historical event as a strong indicator of the market’s potential reaction if these copper curbs are officially implemented.

For those looking to position for a price increase, buying call options on copper futures for the first and second quarters of 2026 appears to be a prudent strategy. This allows traders to capitalize on potential upside with a defined risk, providing time for the policy details to emerge and impact the market. We view this as a way to gain exposure to the developing supply-side story.

To manage premium costs, traders might consider bull call spreads, which would cap potential gains but significantly lower the cost of entry. This approach is suitable for expressing a moderately bullish view while waiting for confirmation from Chinese policymakers. The key is to watch for any official announcements from Beijing’s National Development and Reform Commission (NDRC).

While copper is the main focus, we should not ignore the mention of zinc and lead. These markets are also grappling with overcapacity, and similar supply-side interventions would likely produce comparable price rallies. Monitoring the term structure and options volatility in all three base metals will be critical in the weeks ahead.