Fastmarkets has revised lower the copper content per tonne of concentrate for the base specification to 26% from 28%. The change will take place from April 25. For details of the change, read the pricing notice here.
1. What will happen when the adjustment of the base specification copper grade moves from 28% to 26%?
Previously, Fastmarkets normalized all transaction data of differing grades of clean copper concentrate back to the level of 28%, using the in-house Value In Use (VIU) copper value.
The VIU-Cu is derived from historical data collected and aggregated by Fastmarkets.
The copper VIU coefficient is defined as the value per 1% copper away from the 28% base, which is due to be lowered to 26%.
For instance, a deal for 29% copper concentrate would be normalized back to the 28% copper concentrate by adding the copper VIU coefficient once.
From April 25, the 29% copper concentrate data point will be normalized to the standard 26% copper concentrate by adding the copper VIU coefficient three times.
The rest of the normalization processes for the index: brand, counterparty and QP adjustment, remain unchanged.
2. Does the index cover market activity of high-arsenic copper concentrates, and why?
Yes, the index accepts data points for copper concentrates with arsenic content ranging from 0.17% to 2%.
It implies that the index also tracks market activities of concentrate brands containing an arsenic level exceeding China’s 0.5% arsenic content import threshold.
Although Fastmarkets acknowledges the concerns raised by certain participants that concentrates prohibited from entering China should not be viewed as standard, data points for these high arsenic concentrates will be normalized to the index’s base-clean concentrate specification through a brand coefficient in the index calculation.
A brand coefficient is derived from the differential of the historic market data for a particular brand and that of traded clean, standard-grade concentrates.
Fastmarkets has calculated normalization coefficients for 86 brands of copper concentrates.
3. What about other components such as gold, zinc, bismuth?
The aim of the index is to take copper concentrates mined all over the world, with different chemical specifications, and normalize them to a standard base.
As such, Fastmarkets is looking to lock down a base specification that represents, to the best extent possible, the average clean, standard grade copper concentrate chemical composition.
Aside from this, we want to capture trade data on as many different types of copper concentrates as possible where selling terms are consistent.
This is why we set the minimum-maximum wide enough to be able to include material with higher-than average impurities – treatment and refining charges (TC/RCs) paid against all copper concentrate brands will be normalized to our base spec – whatever the specification.
Part of the reason for this is we have to acknowledge that different smelter markets prefer different brands and chemical specifications in their concentrates.
High-gold concentrates for example are prized by some of the market and eschewed by other smelters. That some smelters prefer not to take high-gold concentrates is no reason for us not to include trades of these brands.
4. But what about penalties?
Penalties are a fact of the market and help participants price the value of certain minerals in copper concentrates.
In the cases where concentrates contain mineralization that would ordinarily face market penalties and penalties are not included – we will not include this trade data in the index.
For material that faces standard penalties however, leaving TC/RCs relatively unaffected, we will exercise editorial judgement to include this material, basis an editorial judgement.
Again, the aim of the index is to normalize as many qualities as possible to a single number; the greater volume of concentrate trade data being utilized should support this.
5. If you are pricing the market more regularly, will you be adjusting normalization specs more regularly too?
Yes. Currently the index normalizations are re-calibrated once every two months, which is enough for a number that will be published four times in that period.
When the index goes weekly it is possible we will have five published numbers per month; the reason for this is to be able to record movements in the spot market more accurately and be more reactive to market moves.
Alongside this, we will re-calibrate normalizations every month to ensure effective representation of the market.
6. Continuity of the index numbers: After the base specification of copper content is changed, will Fastmarkets’ newly published data be incomparable with the previous indices that use 28% as the base number?
Given the current copper VIU coefficient of $0.58 (end-March 2019), the change of the index’s base copper content from 28% to 26% will result in a upward move on the index value by twice this $0.58 value, so around $1 per tonne to $1.20 per tonne.
This is important to note when analyzing moves in the market, but similarly to when we added a counterparty factor to our normalization at the beginning of 2018, we are not going to create a separate line of historic data.
The index has been successfully tracking market moves since its inception; changes are being made to ensure that that continues.
Fastmarkets' copper team has compiled the answers to frequently asked questions (FAQs) from the industry on the change in the benchmark copper concentrate TC/RC index calculation after a revision of the base specifications.