BO X 5 The smelting business model and LME pricing The zinc copper lead and precious metal smelters business model is tightly link ed with the LME metals pricing Smelters pay mining companies the price of metals contained in the ores as set by the LME and not the price of the ores themselves as is the case in steel production A typical contract between a smelter and mining company sells ores at a price that is the LME metals price multiplied by the concentration of metal in the ore e g 55 and the amount e xpected to be e xtracted e g 85 of the metal present in the ores T o this a treatment charge is added From the smelter perspective it is hence essential to achieve a high e xtraction rate e g 95 The diference between the contracted and actual e xtraction gives the socalled free metal Furthermore the smelter can get revenues from the sales of byproducts e g sulphuric acid and other metals recovered unless these are part of the contract with the mining company too Source Nyrstar nonferrous metals production site such as a primary aluminium zinc or copper smelter is both very costly and very timeconsuming R estarting can tak e up to several months So when a smelter is fully or partially idle it tends to be so for a longer period Given these factors it can often mak e more economic sense to operate a smelter with cash loss in the hope of a future increase in the LME price instead of idling part of the production Sustained depression of international metals prices combined with limited changes in production costs can however lead to closures In Europe this was the case during the 2007 economic crisis which since saw the closure of around 1000 kt primary aluminium production capacity 97 Figure 17 Evolution of LME prices for Aluminium top left Copper top right Zi nc bottom left and Nick el bottom right Source LME 97 Eurometaux LME 2018 MET ALS IN A CLIMA TE NEUTRAL EUROPE A 2050 BL UEPRINT 38