CESCO: Disrupted copper scrap flows weigh on copper concs TCs

With copper executives gathering in the Chilean capital of Santiago for this year’s CESCO-organized copper industry convention, interest in mined copper concentrates was being boosted by disruptions to trade flows in copper scrap.

Since last year, China’s copper scrap imports have been restricted by a series of policies designed to restrict the amount of waste the country processes and to tackle its air pollution problem.

But China’s copper smelters still need raw materials, and their quest for alternatives to scrap has led to intensifying competition across the world for copper concentrates. This has sent Fastmarkets’ index for spot Treatment and Refining Charges (TCs/RCs) to a one-year low for the first quarter of $66.70 per tonne/6.67 cents per lb.

China produces 40% of the world’s refined copper, but lacks mines and must import massive quantities of copper raw materials every year, from copper scrap and concentrates to intermediate products such as blister and anodes.

No end to trade flow disruptions
Copper scrap was formerly the key feedstock for China’s refined copper production. Experts have estimated that the country consumes around 50% of the world’s copper scrap.

China imported 3.55 million tonnes of copper scrap with a copper content of 1.49 million tonnes in 2017, according to Zhang Xizhong, vice president of the recycling branch of China’s non-ferrous metals association (CNMIA).

Most of this came from the United States, the world’s premier producer of metal scrap in all forms.

But 2018 marked drastic changes in global scrap flows, with the Beijing government imposing a 25% tariff on US copper scrap imports in August amid trade disputes between the two countries.

At the same time, there were also restrictions on imports of category 7 copper scrap, which were thought to be responsible for pollution, and these were extended into a total ban at the beginning of 2019.

China’s copper scrap import volumes dropped by 32% to 2.4 million tonnes of gross weight in 2018. This meant that, for the first time in 16 years, the country lost its status as the main consumer of US copper scrap. The material is instead finding its way to Malaysia and other Southeast Asian countries, where more processing yards are springing up.

The ripple effects of these changes have continued into the first quarter of this year.

China’s February copper scrap import volumes dropped by more than 50% year-on-year to 64,622 tonnes, following the introduction of the ban on category 7 scrap imports this year.

China’s scrap import volumes were expected to shrink further in the second half of this year, with the industry overshadowed by rumors of a quota system to begin this July to restrict imports of category 6 scrap, which makes up about 85% of the total copper scrap inflows into China.

While the Chinese copper industry was keen to remove the negative connotations of scrap as being materials that will pollute, and has been relabeling it as furnace-ready material, the results were still uncertain.

Chinese scrap buyers were still concerned about whether they might not receive approval to import scrap this summer.

Inevitably, the prices of overseas copper scrap for import into China continued to fall with discounts for No2 copper scrap, birch/ cliff of 94-96% copper, widening to $0.32-0.38 per lb cif China in March, compared with $0.28-0.34 per lb a month earlier.

While the disruptions to scrap supply were expected to remove as much as 500,000 tonnes per year of copper from the Chinese market, more copper producers were looking for copper concentrates for primary smelting, and anodes or blister for refinery processes.

March TCs sink to 1-year low
For the first quarter this year, Fastmarkets’ copper concentrates TC/RC index slid from $84.30 per tonne/8.43 cents per lb to $66.70 per tonne/6.67 cents per lb at the end of March.

Demand for spot parcels from Chinese smelters was surprisingly strong even during February, a month usually characterized by slow market activity due to the holidays to celebrate the Lunar New Year.

In March, CSPT, China’s group of its 10 largest copper smelters, set a second-quarter concentrate TC/RC buying floor at $73 per tonne/7.3 cents per lb, down from $92 per tonne/9.2 cents per lb.

Mine tenders for copper concentrates delivered in the second quarter of this year have been snapped up by traders in the range of the low $50s per tonne/5 cents per lb as the market braces itself for future tightness in supply.

One factor in this was the absence from the market of copper producer MMG’s Las Bambas copper mine, which declared force majeure late in March on sales contracts due to a blockade at the Peruvian mine enacted by the local community.

But the mining company said on Monday April 8 that a deal to resolve the conflict with the local community had been reached, and it expected the mine to return progressively to normal operations.

Meanwhile, a ramp-up of operations by Chinese smelters, planned for last year and this year, continues to come into effect, including a 300,000-tpy project by Southern Country Copper and expansion of the Shandong Humon copper smelter project.

All of these suggest that China, which produced 8.9 million tonnes of refined copper last year, will need to purchase more copper raw materials to feed its smelters.

Blister also in demand
Blister copper, an intermediate product often known as a scrap substitute, was also being sought by Chinese refineries, leading to further slides in its first-quarter refining charges.

As of March 29, the RC was $160-170 per tonne, down from $170-185 per tonne at the end of December last year.

The tighter availability was also a result of production uncertainties in Zambia, which supplies 40% of China’s non-refined copper imports, following a series of tax reforms.

Zambia, which is Africa’s second-largest copper producer, introduced a 5% import tariff on copper concentrates, resulting in a higher procurement cost for blister producers. Major producers such as KCM and Chambishi both planned to reduce their output in 2019.

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