J.P. Morgan: Jiangxi Copper’s smelting profits face pressure on two fronts as JPMorgan downgrades A and H shares

Why did third-quarter profit fall sharply?

Jiangxi Copper’s revenue in the third quarter of 2026 was 135.3 billion yuan, down 19% quarter on quarter; its gross margin fell to 3.1%, narrowing by 2.9 percentage points from the second quarter.
Net profit attributable to shareholders was 3.1 billion yuan, down 47% quarter on quarter; core profit was approximately 2.7 billion yuan, down 39% quarter on quarter. JPMorgan attributed the decline mainly to lower copper concentrate processing charges and pressure on smelting margins.
Cash flow improved: third-quarter operating cash flow was 8.3 billion yuan and free cash flow was 7.9 billion yuan, compared with approximately 300 million yuan and negative 1 billion yuan, respectively, in the second quarter.

JPMorgan believes mine supply has responded slowly to high copper prices, with limited meaningful new supply before 2028; persistent copper concentrate shortages and limited relief from scrap copper supply leave smelters with relatively weak bargaining power.
As of the report date, spot copper concentrate processing charges for October tracked by the bank were approximately negative 233 yuan per tonne, below negative 179 yuan in the third quarter and negative 78 yuan in the second quarter. The further decline into negative territory indicates that the economics of smelting continue to deteriorate.
Higher copper prices and an improved contribution from mining can provide a partial offset, but JPMorgan believes these are insufficient to maintain the previous earnings growth trajectory.

Sulfuric acid is a smelting by-product, and JPMorgan estimates it will account for approximately 35% of the company’s gross profit in 2026. Earlier increases in sulfuric acid prices partly offset the impact of negative processing charges; prices rose from approximately 1048 yuan per tonne in the first quarter to 1941 yuan in the second quarter, peaked above 2000 yuan, and then fell back to approximately 1550 yuan.
The bank expects sulfuric acid prices to normalize further in 2027–2028 as inventories are rebuilt. Acid production from gypsum and phosphogypsum could increase supply and limit price upside, but the timing and scale of new supply remain uncertain.

JPMorgan forecasts fourth-quarter 2026 net profit attributable to shareholders of 2.6 billion yuan, a further quarter-on-quarter decline of 15% and below the 3.8 billion yuan implied by Bloomberg consensus. Its forecast is based on more negative processing charges, continued copper concentrate shortages and a sulfuric acid contribution below its peak.
The bank cut its earnings forecasts for 2026–2028 by 6%–27%. Its revised model projects net profit of approximately 10.1 billion yuan in 2027, below 14.3 billion yuan in 2026, before recovering to 13.2 billion yuan in 2028.
JPMorgan downgraded the A and H shares from Overweight to Neutral and lowered its end-2027 price targets from 55 yuan and 44 Hong Kong dollars to 30 yuan and 24 Hong Kong dollars, respectively. Alongside the earnings forecast cuts, the targets also reflect a reduction in the long-term growth assumption from 2.5% to 1.5% and a lower contribution from First Quantum.
Faster-than-expected copper concentrate mine expansions, a sharp recovery in processing charges, or higher-than-expected copper prices could pose upside risks to the rating.