Shandong Fangyuan Nonferrous Metals Group, China's biggest private-sector copper smelter, is set to receive support from state-run Xiamen ITG Group Corp for parts of its business, four sources said, as it continues to face operational challenges.
Fangyuan can make 700,000 tonnes of refined copper per year - or about 3% of global output in 2020 - but has been operating at a lower rate since admitting liquidity problems in late 2019. An ITG-assisted recovery could lift its demand for raw materials such as copper concentrate and scrap.
The discussions with ITG, a commodity trading firm which also provides supply-chain management services covering procurement, logistics and pricing, are part of a government-backed effort to support the struggling smelter, two of the sources said.
"The basic idea is to finance Fangyuan," said one of the sources, who was briefed on the matter. ITG will purchase and store raw materials, sell them to Fangyuan and then buy back the products, he added. Previous offtakers of Fangyuan's refined copper have included trading house Trafigura.
An ITG representative said he was not aware of the plan, and Fangyuan declined to comment.
A second source said Fangyuan, based in Dongying in eastern China's Shandong province, could lease out its production facilities to ITG. The smelter currently only has one production line operating but hopes to relaunch the second - which is still under maintenance - as soon as next month, the source added.
A third source said Fangyuan may become a "surrogate plant" for ITG, while the fourth source said the "fairly complicated" arrangement involved supply-chain management and was still being ironed out. "For now, it's just a framework," he added.
All the sources declined to be identified because the discussions were private.
Operating conditions for smelters in China, the world's biggest copper consumer, have hardly improved since Fangyuan's financial problems came to light.
A rough start to 2020 saw the coronavirus hit consumption and logistics, and even though a demand rebound has since taken copper prices to multi-year highs, tight mine supply has pushed treatment and refining charges for concentrate - a key source of smelter revenue - to decade lows.
(Reporting by Tom Daly; editing by David Evans) ((email@example.com; +86 10 5669 2119;))