Iran Conflict Delivers Unexpected Margin Windfall to Chinese Copper Smelters Through Sulphuric Acid Shortage

Copper smelters in China are reactivating production after months of planned cuts, not because refining margins improved, but because the Iran conflict accidentally doubled the value of a industrial by-product they produce whether copper prices rise or fall. Sulphuric acid prices surged globally — with spot levels near $800 in the Democratic Republic of Congo — after Iran’s late-February closure of the Strait of Hormuz cut off roughly 24% of global sulphur shipping from the Middle East, according to Foreign Policy. Chinese refiners now earn more from acid sales than from processing copper ore itself, even as treatment and refining charges (TC/RCs) — the fees miners pay smelters — collapsed to zero for 2026 annual contracts and turned negative in spot markets.

The Margin Paradox

Copper hit $6.07 per pound on April 15, approaching the record $13,387 per metric tonne set in January, driven by safe-haven demand and industrial users restocking ahead of potential supply disruptions. But the real story is happening one derivative layer down: Chinese smelters that agreed in November to cut production by over 10% are now raising or maintaining 2026 guidance after sulphuric acid — a chemical by-product of copper refining used in mining, battery production, and fertilizer — became scarce enough to offset collapsing core margins.

The January 2026 TC/RC benchmark between Antofagasta and Jiangxi Copper set the annual processing fee at zero dollars per tonne of concentrate — the lowest ever recorded and down from $21.25 in 2025, per IEA analysis. Spot markets turned negative in April 2024 and hit minus $77 per tonne on April 10, meaning smelters effectively pay miners for the right to process ore. Under traditional metrics, Chinese refineries should be shutting down.

Instead, output rose 9% year-over-year through the first two months of 2026, sustained entirely by revenues from sulphuric acid, gold, and silver extracted during the refining process. China supplies roughly 50% of global refined copper and accounts for 83% of domestic primary smelting capacity at 9.61 million tonnes annually, making the production decision of the China Smelters Purchase Team (CSPT) a global price signal.

Geopolitical Transmission Mechanism

The Middle East accounts for 45-50% of global sulphur exports, much of it shipped through the Strait of Hormuz as a by-product of oil and gas refining. Iran’s naval blockade since late February severed that flow exactly as China — the world’s largest sulphuric acid producer — announced in April it would halt exports beginning in May to prioritize domestic food security and downstream industries, according to South China Morning Post. China’s 2025 acid exports totaled $290 million; first-quarter 2026 shipments were already down 50%.

The dual supply shock created a windfall for smelters holding domestic acid inventory while crushing buyers. Antofagasta reported first-quarter net cash costs down 30% to $1.08 per pound despite an 8% production decline, attributing the improvement to “stronger by-product credits” including sulphuric acid, per investor filings. CRU Group analysts noted in an April analysis that “although copper cash costs rose, higher gold and silver prices, sulphuric acid prices, energy credits, and other revenues drove copper net cash costs down.”

Supply Chain Chokepoint

The acid shortage exposes a structural vulnerability in the Energy Transition. Sulphuric acid is required to leach copper from oxide ores (20-30% of global production), process nickel for EV batteries, and manufacture phosphate fertilizers. African copper oxide mines — critical to near-term supply growth — face shutdowns if the Iran disruption extends beyond three weeks, according to Friedland. Spot prices near $800 per tonne in the DRC compare to $150 five years ago, compressing margins for downstream users while expanding them for smelters.

Global copper demand is projected to surge from 28 million tonnes in 2025 to 42 million tonnes by 2040, driven by data centers, artificial intelligence infrastructure, electric vehicles, and grid expansion. But refining capacity growth at 3.8% annually through 2028 is outpacing concentrate supply growth, creating a structural deficit estimated at 330,000 to 834,000 tonnes for 2026. The acid bottleneck compounds the mismatch: if oxide mines shut down due to acid scarcity, concentrate supply tightens further, pushing TC/RCs even deeper into negative territory and making smelters more dependent on by-product revenues.

The Reversal Signal

Ronan Murphy, head of base metals pricing at Argus, told Reuters that elevated by-product prices “have limited the requirement for smelters to reduce output even in the face of a collapse in treatment charges. This may start to change now” as China’s export ban removes the relief valve for global acid markets. If domestic Chinese acid prices fall due to oversupply from continued smelter production, the margin cushion disappears and CSPT members face renewed pressure to honor November’s 10% output cut pledge.

Refined copper premiums hit record highs in 2026, with many smelters securing $300-plus per tonne for delivery, supporting profitability alongside by-product credits. But the premium structure assumes continued Chinese output. If a prolonged Iran conflict keeps acid prices elevated through mid-2026, smelters may run at higher utilization than the 10% cut target, tightening refined copper availability and sustaining premiums. If a ceasefire allows Middle East sulphur exports to resume — reports emerged of a potential two-week pause in mid-April — acid prices could collapse, eliminating the windfall and forcing actual production cuts.

What to Watch

The durability of Iran’s Strait of Hormuz restrictions will determine whether Chinese smelters maintain their margin cushion or face renewed pressure to cut output. A sustained blockade through May keeps sulphuric acid prices elevated, supporting smelter economics and copper prices above $6 per pound. A ceasefire that reopens Middle East sulphur flows crashes acid prices, removes the by-product subsidy, and forces CSPT to implement the November production cuts — potentially tightening refined copper supply and pushing prices higher through scarcity rather than demand.

Downstream buyers face a narrowing window to secure acid contracts before China’s May export ban takes full effect. African oxide operations and nickel refineries are most exposed; shutdowns would cascade into concentrate and intermediate product shortages later in 2026. The degree to which acid scarcity becomes structural — rather than a temporary geopolitical shock — will determine whether by-product economics permanently replace treatment charges as the primary driver of smelter profitability, fundamentally altering how copper supply responds to demand signals in the energy transition.