The huge expansion in smelting and refining capacity in China is putting pressure on the rest of the world’s industry, making it almost unprofitable, Swiss resources group Xstrata’s (LSE: XTA) copper division CEO Charlie Sartain told journalists at CRU’s 9th World Copper Conference in Santiago, Chile.

“What we see in the copper industry is that it has split into two almost separate industries. The mining industry, which is more upstream and a profitable business that provides good return on investment; and the smelting and refinery industry which is becoming unprofitable as a result of the increased capacity in China,” Sartain said.

China’s increase in smelting and refining capacity is expected to continue this year, he said, adding pressure is also felt by integrated companies such as Xstrata.

Regarding the company’s Altonorte smelting facility in northern Chile, Sartain said the company is constantly improving productivity and efficiency, and the plant is currently producing at its design capacity. “Still, Altonorte, such as almost every smelting plant in the world, has profitability problems, and we are making huge efforts to keep it as a profitable asset,” he said.

In response to a question about selling the asset, Sartain said Xstrata is constantly evaluating all of its assets, including smelting plants, and looking for the best way to add value to the company. “But we do that will all our assets, not just smelters.”

Regarding copper prices, Sartain said a quite remarkable strength in the red metal market is currently being seen for the medium term. “We see fundamentals to continue to be strong for copper. Demand is starting to recover, although slowly in developed countries, and we are expecting the ongoing strength in China.”

Sartain forecasted a tight market over the next couple of years as a result of supply responding relatively slow to increased demand. He also estimated demand growth of 6-7% from China and 2-3% from the developed world in 2010.

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