Copper smelters feel pain as treatment and refining charges plummet | Hotter Commodities

The tightness in the copper concentrate market has been reflected in treatment and refining charges (TCs/RCs), which are approaching all-time lows set in April 2021.

Fastmarkets calculated the copper concentrates TC index, cif Asia Pacific and the copper concentrates RC index, cif Asia Pacific at $22.70 per tonne and 2.70 cents per lb respectively in the week ending January 26, both down by 52.9% from January 5.

TCs are the fees mining companies pay smelters to have their semi-processed ore, or concentrate, turned into finished metal. Typically, tighter spot supply leads to a drop in spot TCs and RCs.

The current tightness in the concentrate market became more noticeable when First Quantum was ordered to suspend production at its 350,000 tonne per year Cobre Panama mine due to a ruling by the Supreme Court of Panama.

This was followed by lower copper mine production guidance for 2024 by companies including Anglo American, Vale and Southern Copper. Fastmarkets analysts forecast 2024 copper mine production to total around 324,000 tonnes.

The market had already been dealing with lower-than-expected output in 2023 from Teck Resources due to challenges ramping up its QB2 operation and a geotechnical fault at Highland Valley Copper.

According to Fastmarkets analyst Andrew Cole, the copper concentrate market balance will show a deficit of around 300,000 tonnes this year – a significant turnabout from a projected surplus of similar magnitude that Fastmarkets forecast just three months ago.

Smelting growth

In any given year, copper market participants usually expect some disruptions to mine production, and more are likely in 2024 due to factors including protests and industrial action, bad weather and poor ore grades, sources told Fastmarkets.

But a rapid increase in smelting capacity is expected in the coming months while new projects are commissioned, which should exacerbate an already existing struggle to secure concentrate, sources said.

New projects include Freeport-McMoRan’s Manyar smelter in Gresik, Indonesia, which will have the capacity to process around 1.7 million tpy of copper concentrate when it ramps up this year.

Freeport-McMoRan has also expanded capacity at its existing Gresik smelter by 30%, taking processing capacity to 1.3 million tpy of copper concentrate.

The company currently has concentrate to sell from its Indonesian mining operations, but this will change when the Manyar smelter is up and running, Freeport president Kathleen Quirk said during an earnings call last week.

“Once we get the smelter in Indonesia up and running, we still have concentrate from Cerro Verde [in Peru] that we sell, but everything from Indonesia will really just be processed at our own smelters,” Quirk said in the call.

Meanwhile, major additional smelting capacity is scheduled for this year in India, the Democratic Republic of Congo (DRC) and Indonesia.

India’s Adani Enterprises is pushing ahead with plans to start the first phase of operations at its 500,000 tpy copper facility this year, while Ivanhoe Mines and Zijin Mining Group will complete a 500,000 tpy direct-to-blister copper smelter at Kamoa-Kakula in the DRC.

A unit of PT Amman Mineral International is building a smelter at the Batu Hijau mine in Indonesia, a project the company says will be completed in May, with commissioning and ramp-up to follow. The smelter will have the capacity to process 900,000 tpy of copper concentrate from the company’s Batu Hijau and future Elang mines.

And mega smelting capacity is growing in China, which could add at least 3.4 million tpy of new copper production capacity by 2026.

The lion’s share of this capacity will come from three projects by Tongling Nonferrous, which will make it the biggest smelting company in the world at over 2 million tpy.

All of these new smelter projects will either use concentrate from their own mines as feedstock — diverting supplies from existing customers — or source raw materials from an overcrowded spot market, sources told Fastmarkets.

One tonne of new smelting capacity requires roughly four tonnes of concentrate, leading smelters to lock in supplies of concentrate, which puts downward pressure on spot TCs/RCs, Fastmarkets understands.

China’s response

Every year, members of the Copper Smelters Purchase Team (CSPT) – China’s major copper smelting alliance – negotiate annual TCs/RCs with major miners, which are typically then followed by the rest of the market in settling contracts for the following year.

Last week, the CSPT held an emergency meeting and set a buying guidance of $50 per tonne/5 cents per lb for spot copper concentrate TCs/RCs for the first quarter of 2024.

But in December, the CSPT had set a buying guidance of $80 per tonne/8 cents per lb for the first quarter — the same level that Chinese smelters and copper miners Antofagasta and Freeport agreed to for their 2024 contracts. This was already down by almost 16% from the CSPT’s guidance of $95 per tonne/9.5 cents per lb for the fourth quarter of 2023.

During the meeting last week, the CSPT discussed the possibility that smelters bring forward scheduled downtime for maintenance and production cuts, although no decision was reached. Some Chinese smelters have already chosen to run at reduced operating rates.

About 20-40% of Chinese smelters buy concentrate on a spot basis, according to sources at major copper miners.

Some market observers said that TCs/RCs have already overshot on the downside.

If smelters act to reduce capacity or take earlier-than-planned maintenance breaks, it will help alleviate some of the pressure on concentrate supply, especially with the Lunar New Year holiday approaching.

But, according to Fastmarkets’ Cole, TCs/RCs tend to reach yearly lows around April, and El Nino weather events could cause further mine disruptions in the first quarter of 2024.

Therefore, even if TCs/RCs stabilize now, another dip – potentially to fresh lows – is possible in the next few months, Cole added.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.