High copper concentrate costs, supply deficit to hurt copper smelters from 2025: LME Asia Week 2024

Hefty copper concentrate costs amid a sustained supply deficit are expected to cause most global copper smelters to run below costs from 2025 onwards, sources told Fastmarkets at the sidelines of LME Asia Week 2024 in Hong Kong on Thursday June 27

Copper concentrates treatment and refining charges (TC/RCs) are the fees miners pay smelters to turn concentrates into refined metal and are one of key profit margins for copper smelters.

The TC/RC number typically falls in a supply deficit and rises when supply grows, sources said.

Chinese copper smelters, which are usually the most active ones in spot market, have increased spot purchases amid the unexpected closure of First Quantum’s Cobre Panama copper mine in November 2023 output cuts at some copper mines, and new smelting capacities coming online in China.

This led to the tumble in spot copper concentrates TC/RCs since late-2023, which later fell into negative territory on April 26 due to tighter supplies and brisk buying.

Fastmarkets calculated the most-recent weekly copper concentrates TC/RC index, cif Asia Pacific, which measures the mid-point between smelter and trader purchasing, at $(4.4) per tonne/(0.44) cents per lb on June 28, up slightly from $(5) per tonne/(0.50) cents per lb a week earlier.

Copper smelters that have a high proportion of copper concentrates tied with the benchmark system could get some cushion this year thanks to the higher benchmark number of $80 per tonne/8.0 cents per lb reached in November 2023 between Chilean miner Antofagasta and Chinese copper smelters, sources told Fastmarkets.

But a higher benchmark number could become unachievable in 2025 due to the persistent tightness in supplies of copper concentrates, sources said.

“The combination of 2024’s copper concentrates supply volumes pegged with the annual benchmark number means copper smelters with a high proportion of contractual supplies could still survive because they have locked many of their volumes at or closer to $80 [per tonne] and they could afford extremely low spot TCs. But a higher benchmark number is impossible for 2025’s supplies for deals that have already concluded,” a copper concentrate trader said.

Antofagasta inked a deal for supplying Chinese copper smelters’ 50% of copper concentrates at TC/RCs of $23.25 per tonne/2.325 cents per lb on June 27.

“The $23.25 per tonne figure is clearly below the costs of almost all copper smelters globally. We don’t have clear plans yet, but apparently, a real testing time will be coming from next year,” one copper smelter said.

“Copper smelters will be exposed to bigger risks arising from costly copper concentrates and they will try all ways to reduce losses. These could include output cuts, due to difficulties in getting cheaper raw materials,” a second copper concentrate trader said.

There are also expectations among market participants that the outcome of the annual supply talks at the end of the year may not be promising in the absence of factors like smelter closures or a surge in the supply of copper concentrates, participants at LME Asia Week told Fastmarkets.

“The market structure is pretty clear and the tightness [in the supply of copper concentrates] will not be eased in the next two years. Participants are also not too optimistic about the copper cathode market next year due to more supplies and this could add to the challenges faced by copper smelters when they already struggle with hefty raw material prices,” another copper attendee said.

Fastmarkets assessed the daily copper grade A cathode premium, cif Shanghai at $(15)-0 per tonne on June 28, compared with $(15) -$5 per tonne a day earlier, and recovering slightly from a record low of $(5)-(30)per tonne on May 30.

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