US-China Tensions Boost Prospects for Mexico Smelter Project

US-China tensions are boosting the prospects of a Mexican copper smelter project proposed by Southern Copper Corp.

(Bloomberg) — US-China tensions are boosting the prospects of a Mexican copper smelter project proposed by Southern Copper Corp.

As the US seeks to reduce supply-chain reliance on geopolitical rivals and source imports closer to home, more finished copper could be absorbed by manufacturers in Mexico, Southern Copper Chief Financial Officer Raul Jacob said in an interview Tuesday.

Right now the company’s mines in Mexico produce more semi-processed copper, known as concentrate, than its plants can handle, with the remainder shipped to smelters offshore. It’s considering spending $1 billion-plus on a new smelter in Empalme, Sonora state. 

“The market for buying concentrate in this environment will be favorable because you will have some different ways to get refined copper other than sending it to China,” Jacob said.

US-China tensions are redrawing global trade — including markets for metals that are key in the shift away from fossil fuels — with Mexico recently overtaking China as the top supplier of goods to the US.

Read More: The Biggest US Trading Partner Is No Longer China, It’s Mexico

Southern Copper is considering a similar-sized smelting investment in Peru to service its mines, identifying Japanese technology that is more efficient than its current operations.

Still, pulling the trigger on the smelter projects requires greater clarity in the company’s mining-expansion plans as it looks to ramp up copper output from 932,000 metric tons this year to about 1.6 million tons by 2032. The new smelters are estimated to begin operating in 2029, each with a capacity of 1 millions tons.

Mineral-rich countries from Indonesia to Chile are looking to grow their processing capacity in a bid to reduce dependence on Chinese smelters and the waste involved in exporting concentrates. But the real bottleneck in copper — as electrification boosts demand — is expected to be at mines rather than processing. 

Still, Southern Copper’s existing plants are getting good returns and selling more refined metal directly to manufacturers has strategic benefits, Jacob said. “When you sell concentrate, you have the smelters and the traders and they are not necessarily the best.”

Read More: Chile Delivers Copper-Smelting Plan to Rely Less on Asian Plants

At its mines in Peru, Southern Copper is operating normally and is on track to meet annual guidance, he said. 

Mining in Peru is recovering after months of disruptions from protests in the wake of Pedro Castillo’s ouster as president. Thousands of police backed by the military are guarding a road in the south used to transport copper from mines to port.

While “things have really calmed down,” there’s more to be done to improve relations with communities, Jacob said. The government is working to streamline permitting to unlock investments.

Besides its own $10 billion-plus project pipeline, Southern Copper is open to other growth opportunities in the Americas. In Ecuador, it’s ending an exploration project. Chile is of interest, depending how a constitutional process pans out, while Argentina also “very interesting,” Jacob said.

In terms of copper demand, Jacob sees China coming back from a slowdown without returning to previous high rates of growth. Nearshoring also may restrict Chinese demand. The US is the only major economy still growing strongly right now.

“We’re getting into a new environment worldwide,” Jacob said.

(Adds comments on mine operations and demand outlook from 10th paragraph.)

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