China’s leading copper smelters have decided to lower production by over 10% next year. This choice comes after a steady decline in treatment and refining charges (TC/RC)—the fees smelters pay to process copper ore. With TC/RCs dropping and smelters now facing higher raw material costs, continuing production at current levels has become tough. Last year, industry discussions considered production cuts but didn’t lead to any agreements, allowing copper production to keep increasing until it peaked in June. Now, concerns about supply shortages are becoming real, driving copper prices higher. Recently, prices jumped by about 2%, hitting around $11,300 per ton. The exact effect of these production cuts is still unclear, as we haven’t seen data reflecting these changes yet. Rising copper prices might tempt smelters not involved in the cuts to ramp up production. This creates uncertainty around how much copper production in China will actually decline. The agreement by China’s top copper smelters to reduce output by over 10% is now a key factor in the market. This decision comes after a significant drop in treatment and refining charges, which makes ore processing unprofitable. With copper prices already exceeding $11,300 per ton, the market anticipates a major supply disruption from the world’s largest copper producer. This news about supply cuts coincides with critically low inventories and strong demand. Recent figures show LME copper stocks falling below 70,000 tonnes, a multi-year low, and China’s Caixin Manufacturing PMI for November 2025 surprising at 51.2. The mix of decreasing supply and strong demand sets a strongly bullish outlook for the metal. For derivative traders, this situation signals a chance to prepare for rising prices in the coming weeks. Buying call options on copper futures seems wise to take advantage of potential price increases from this supply disruption. A bull call spread strategy could also work well, helping to manage premium costs while staying positive on the market. However, it’s crucial to keep in mind that these production cuts are just an agreement and haven’t yet shown in output numbers. The record-high prices might encourage smaller, independent smelters to boost their production, possibly offsetting the larger smelters’ cuts. Therefore, we will be monitoring the next official production data from China closely. A similar pricing pattern occurred between 2020 and 2021 when supply issues and high demand led to a rapid, sustained rally. That period was marked by significant volatility, and we expect similar conditions now. As a result, implied volatility on copper options is likely to rise, reflecting the increased uncertainty and potential for larger price fluctuations.

here to set up a live account on VT Markets now