Exclusive-Nornickel in talks with Xiamen C&D to shift copper smelting to China

By Polina Devitt and Amy Lv

LONDON/BEIJING (Reuters) - Chinese conglomerate Xiamen C&D and Russia's Nornickel are in talks to create a joint venture in China to process Nornickel's copper raw material into metal, two sources with knowledge of the matter told Reuters.

Nornickel has struggled to import equipment to sanctions-hit Russia, where it produces copper used in the power and construction industries.

It said in April it would close its Arctic facility and build a copper plant in China by mid-2027, but it has since been looking at buying a stake in an existing smelter rather than the original idea of building from scratch, one of the sources said.

"Nornickel is negotiating for possible organisation of production in China. If agreements are reached, we will disclose them," Nornickel said in response to a request for comment. It declined to provide any detail.

The smelter in question is Shandong-based Yanggu Xiangguang Copper in which Xiamen C&D holds a majority stake, the sources said. They asked not to be identified because they were not authorised to speak on the issue.

Nornickel and Xiamen C&D have yet to reach a final agreement, finalise the size of the investment or stakes in the potential joint venture, they added.

"It's an opportunity for the Xiangguang (facility) as low processing fees have added pressure on smelters to generate profit especially next year," the second source said.

Xiamen C&D did not respond to Reuters' requests for comment. Xiangguang declined to comment.

Xiangguang has annual production capacity of 400,000 metric tons of copper cathode. This roughly matches Nornickel's need to move its copper smelting base from the Arctic facility to China, the world's largest consumer of the metal.

Nornickel produced 425,000 tons of refined copper last year, nearly 2% of global mined output.

Xiangguang smelter relies on concentrate from third parties for processing. The sector's profitability and smelting activity have been hit by low processing fees following an expansion of capacity in China.

According to analysts, the smelter is operating at 60-80% of capacity and needs a guaranteed feed supply.

The sources said securing a supply was the incentive on the Chinese side for a deal.

They also said a consequence of processing Nornickel's feed would mean Xiangguang's metal would no longer be deliverable against the copper contract on the London Metal Exchange (LME), a market of last resort.

The LME banned from its system metal produced in Russia on or after April 13.

Nornickel is not under Western sanctions imposed on many other Russian firms after Moscow invaded Ukraine in February 2022. But many Western consumers have self-sanctioned, declining to renew contracts with the company since then and Nornickel has diverted its metal to China.

Both sources also said that, if the deal is agreed, technology would need to be modernised at Xiangguang smelter so that it can process the nickel and platinum group metals that Nornickel's copper concentrates contain.

(Reporting by Polina Devitt in London and Amy Lv in Beijing; Editing by Pratima Desai and Barbara Lewis)