The spot market has been in a prolonged downtrend since 2014, but a recent bout of tightness has seen terms dip by 27% in the past two weeks.
TC/RCs, which are discounts to exchange prices paid to smelters for processing ores into metal, are at levels last seen in 2010-11, at the tail end of a commodities supercycle, when red-hot demand for copper from China was rapidly outpacing supply.
Now, with tonnages beginning to trade closer to single-digit numbers, market participants have been left to wonder how the market will develop from here.
“Smelters are able to purchase material right now at extremely low TCs due to high prices for sulfuric acid, by-product credits, higher value for free copper recovered, as well as high prices and premiums,” Capstone Mining marketing director Ashley Woodhouse told Fastmarkets.
The company had received “numerous” inquiries for concentrates, she added.
“Historically,” she said, “smelters’ average break-even TC would be around [$60 per tonne/6 cents per lb], but in the current environment smelters are still making money buying in the [$30s per tonne range], and we foresee that going even lower. [We] expect to see smelters, especially in China, buying at [TCs of $0 per tonne/0 cents per lb] and they will still be profitable.”
Traders make bullish bets
Copper mine tenders, for concentrates sold into the spot market, have been sold to traders at terms in the ‘teens’ – less than $20 per tonne/2 cents per lb, in the case of Antofagasta’s Centinela material.
But in recent weeks, traders have been betting that the current tight situation for concentrates will last for significantly longer than the just the next few months.
A March tender of Pan Aust’s Phu Kham copper concentrates, for shipment in the third and fourth quarters of the year, was said to be awarded in the low $20s per tonne/2 cents per lb. Meanwhile, parcels of Zijin’s Bisha, which normally trades at a discount to ‘clean’ low-impurity concentrates, was said to have been bought in the mid-$20s per tonne/2 cents per lb.
“People are overbuying material just to be sure they have it,” a trading source said. “The step change is in part because [nobody] knows what’s going to happen in Peru. It just adds add to the general tightness and uncertainty.”
Since the start of the year, there have been a series of disruptions leading to delays of shipments of copper concentrates out of key South American loading ports.
For almost the whole of January 2021, Chilean exporters found it impossible to ship copper out of the country, which is the world’s top miner of the metal and accounts for 27.6% of global output.
More recently, operations were suspended at Glencore’s Antapaccay in Peru because members of the local community blockaded the copper mine, while workers at Antofagasta’s Los Pelambres were involved in a mediation process with the company after voting last week to go on strike.
Can smelters continue to take the heat?
The drop in TC/RCs has been fuelled by consistent growth in Chinese demand for copper concentrates, driven by three main smelting projects.
China Copper’s smelter in Chifeng, with capacity for 400,000 tonnes per year, went live in 2019 and ramped up to full capacity through 2020. Also in Chifeng, Tongling Nonferrous shut down capacity for 200,000 tpy but built another unit for 400,000 tpy that began processing concentrates late last year.
In the meantime, Daye Nonferrous, part of China Nonferrous Metals Co, began construction of its new 400,000 tpy smelter in May 2020, with a start date expected in December 2021.
The expansion of capacity by these three state-backed companies was expected to be resilient in spite of diminishing margins for the companies.
“On paper at least, the unit revenue to smelters from TCs and prices via free metal is now on the low end of the range of where we’ve been for the past 10 years,” Duncan Hobbs, head of research at metals trading house Concord Resources, said. “The last time unit revenues were at these levels, at times in the early 2010s, smelters weren’t happy - but nobody was cutting for commercial reasons.”
TC/RC drop could reduce refined output
Continued demand has seen Chinese smelters purchase spot parcels of copper concentrates at prices as low as $30 per tonne/3 cents per lb, far below guidance set by state-run smelters at $53 per tonne/5.3 cents per lb for first quarter buying.
“Stocks at Chinese smelters are still low. They attempted to accumulate inventories last year but, under the guidance of annual production plans, they processed large amounts in December,” Ming Gong, a copper analyst at Jinrui Futures, said.
Some of China’s top smelters drew up plans to reduce capacity utilization if copper concentrate TC/RCs remained at low levels, but as yet no cuts have been made.
“To maintain regular output, smelters will maintain purchases to meet rigid demand. However, considering the low TC, unplanned maintenances are possible, and smelters may have already slowed down production,” Ming said.
Several refined copper producers in China were looking to switch to processing more blister and scrap copper, with RCs for both trending progressively higher.
Fastmarkets’ latest price assessment for copper blister 98-99% RC, spot, cif China, was $160-170 per tonne on March 1, the highest since May 2019.
What could lead to a turnaround?
The last time TC/RCs were this low, it was a tragedy that prompted sharp market action, rather than a gradual balancing of supply and demand.
A decade ago, a 9.0-magnitude earthquake off the coast of Tohoku, Japan, led to tremendous loss of life as well as forcing the shutdowns of several major industrial plants, one of which was Mitsubishi Materials Corp’s Onahama smelter, which closed for three months.
Now market analysts see copper prices of more than $9,000 per tonne as encouraging miners to boost output, coming at a time when smelters outside of China have, for the most part, already sourced inventories for the remainder of this year.
“I believe we won’t see a true turnaround until the second half of this year, when supply expansions will appear and the influence of bad weather [across coastal Chile] and Covid-19 will dissipate gradually,” Jinrui’s Ming said.
Fastmarkets’ research team forecasts that copper concentrate supply will rise by 2.1% in 2021, allowing for potential disruptions, and to rise by a further 7.1% in 2022.
“It has to go up. This level is not sustainable,” a second trader said. “But we have been saying this for the past two months - $40 [per tonne], $35… and [TCs] keep going down.”
Julian Luk in Hong Kong contributed to this article.
Treatment and refining charges for copper concentrate fell again to new 10-year-lows in the week ended Friday March 12, with Fastmarkets’ copper concentrate index dropping to less than $30 per tonne/3 cents per lb for the first time.