SHANGHAI - Surging prices for gold and other byproducts are keeping China's copper smelters afloat and could fend off significant production cuts this year despite a key gauge of industry profitability forecast to slump even further into the red.

China's copper smelting industry is in a deep funk as an ever-growing number of furnaces jostle for limited concentrate supplies. Smelting capacity is up a quarter since 2021 and is set to rise around 10% this year, even as mine closures overseas keep supplies of the crucial raw material tight.

The fees smelters receive for refining ore, called concentrate treatment and refining charges (TC/RCs), are already negative and set to fall further, according to six traders and analysts. Negative TC/RCs mean smelters must pay miners or traders to process concentrate into metal, in effect paying their customers.

However, smelters are unlikely to cut significant production despite dire TC/RCs because high prices for smelting byproducts like gold and sulfur are partially offsetting losses, they said.

Record prices for gold are offsetting some of the losses for processing concentrate rich in gold, according to one trader, who said he had heard of one TC/RC deal at minus $80 per metric ton or minus 8.0 cents per pound.

Smaller, older smelters without the advanced technology to extract gold and other byproducts are likely to struggle, however, because they only account for a small part of production, according to three sources. Cuts and closures at these facilities are unlikely to drag down Chinese copper output, they said.

The copper concentrates TC/RC index hit a record low of -$34.71 per metric ton and minus 3.47 cents per pound on April 18, according to Shanghai Metals Market.

But in a sign of how the industry is powering on despite months of negative TC/RCs, analysts at Mysteel consultancy expect refined copper output to grow 10% this year.

The steady growth in refined copper output is underpinned by China's massive expansion of copper smelting capacity, estimated by Benchmark Mineral Intelligence (BMI) at 12.78 million tons this year, up 8% from last year and 25% since 2021.

China's refined copper output declined only 0.5% year-on-year to 3.35 million metric tons in the first quarter, according to official data.