S&P Global Platts is reporting that treatment charges for copper concentrate have dropped to new 10-year-lows on March 29, placing intense pressure on margins for China’s copper smelters.
The CIF China clean copper concentrate treatment and refining charges or TC/RCs were assessed at $29/mt and 2.9 cents/lb on March 29 by S&P Global Platts. This is a 27.5% decline from the charges of $40/mt and 4 cents/lb on Feb. 1, and a decade-low.
Tight spot supply
China’s unofficial ban imposed on Australian concentrate imports since last December, shipment delays for Chilean cargoes in January, the pandemic-induced slowdown in the startup of new mining projects, and increasing impurities in the output from Chile’s major Collahuashi mine had resulted in a tight spot supply.
After buyers faced difficulty reaching agreement with sellers during negotiations last December, some Chinese smelters also reduced term contract volumes for 2021. Market sources said that both traders and smelters were now buying in the spot market, which has pressured down spot TCs significantly.
Copper cathode data
As per the National Bureau of Statistics data, China’s copper cathode output had surged 7% year on year to 1.63 million mt over January-February. Copper cathode production data showed that smelter production rates were high, pressuring TCs lower.
Copper prices had reached a nine-year high on Feb. 25 at $9,500/mt. The price spread between scrap copper and copper cathode also tripled from Yuan around 2,000/mt last October to Yuan 6,585/mt ($1,013/mt) on March 29.
Smelters under pressure
The profit margin of a copper smelter depends on the treatment charges, copper cathode premiums, sulfuric acid prices, and copper prices. Although sulfuric acid prices remained firm in eastern China at Yuan 400/mt ($61.50/mt), the other key elements had cut into the profit margin of smelters.
As per a source at a major Chinese smelter, the sharp decline in TCs was unanticipated and the situation for smelters was currently “quite difficult.”
Market sources said that the low TC’s have resulted in several smelters bringing forward maintenance plans, or reducing raw material usage to minimize spot buying. Some smelters also bought blister to produce cathode instead of sulfuric acid. Market sources also noted that Chinese smelters are unlikely to cut production significantly.
TCs rebound likely in 2H 2021
According to sources, the treatment charges are anticipated to rebound during the second half of the year, as the Spence copper mine in Chile, Grassberg in Indonesia, and Timok in Serbia are all slated to ramp up output.