Three people familiar with the matter said China’s antitrust regulator has asked Anglo American (LSE: AAL) to commit to stable supplies of copper concentrate to China as a condition for approving its proposed US$54 billion merger with Canada’s Teck Resources (TSX: TECK.B). The demand reflects the raw material supply difficulties facing China’s vast copper smelting industry: China produces 60% of the world’s refined copper output and is currently experiencing its most severe raw material shortage in decades.

Analysts said smelters are scrambling for feedstock, and falling prices of the by-product sulphuric acid are squeezing profit margins, with China’s refined copper output growth this year expected to hit its lowest level since at least 2000.

The people, who declined to be named because the discussions are confidential, said the State Administration for Market Regulation (SAMR) has asked Anglo American to provide assurances on copper concentrate supply, including volumes sold through traders.

One person familiar with the matter said the regulator has received feedback from domestic smelters and is now negotiating corresponding remedies around the companies’ concerns.

As the main consumer of both companies’ copper products, China effectively has a veto over the merger. In past large deals, China has used its antitrust review authority to require transaction parties to make strict behavioural remedies to safeguard raw material supply for domestic industry. Teck Resources declined to comment on the regulatory process; SAMR did not immediately respond to a request for comment.

An Anglo American spokesperson said: “Work to complete the transaction is progressing well, and we are engaging constructively with China’s regulator SAMR in accordance with the standard review process.” The spokesperson did not disclose further details.

Both Anglo American and Teck Resources have marketing teams in China.

Industry analysts said that if Anglo American and Teck do not continue to release large volumes of copper concentrate into the open market after the merger, it could accelerate the closure of some Western smelting facilities, which are already under cost pressure.

Analysts also mentioned that if the parties implement clauses restricting the destination of supply as required by regulators, it may accelerate the industry’s departure from the traditional annual benchmark pricing model toward index-linked spot pricing mechanisms.

Most of Anglo American’s copper output in Peru and Chile is sold as copper concentrate, to buyers including custom smelters in China, Japan and Europe.