China copper smelters lower Q3 TC/RC floor by 25% but make no plans to cut production

China’s 10 biggest copper smelters have set a treatment and refining charges (TC/RCs) purchase price floor of $55 per tonne/5.5 cents per lb for the third quarter of this year, sources close to the matter told Fastmarkets on Thursday July 18.

The latest price floor represents a 25% decrease compared with the second quarter’s level of $73 per tonne/7.3 cents per lb and was set at the Copper Smelter Purchase Team’s (CSPT) quarterly meeting in the city of Hunchun, in China’s far eastern Jilin province, on Thursday.

The CSPT comprises purchasing managers from the country’s 10 biggest copper smelters that include Tongling Nonferrous Metals, Jiangxi Copper, Daye Nonferrous, China Gold, Baiyin Nonferrous, Gansu Jinchuan, Yunnan Copper, Zhongtiaoshan, Yantai Guorun and Zijin Mining.

Despite the significant quarter-on-quarter decrease in the TC/RCs purchase price floor, most market participants were largely unsurprised by the move.

“The latest price limit is a response to the sharp fall in TCs over the past two quarters and is consistent with recent spot trades but will put under pressure those small- to medium-sized smelters whose breakeven level is said to be around $60 per tonne for TCs,” a trader source said.

“The drop in the TCs floor is not unexpected but the sharpness of the drop is a bit surprising. Active purchasing by traders and massive newly-added demand for copper concentrate has accelerated the decline,” a smelter source said.

An estimated 600,000 tonnes of copper cathode production has come on stream in China via start-ups and the ramping up of existing projects commissioned in 2018 and 2019. This equates to an additional 2.4 million tonnes of copper concentrate demand in the country.

China imported 10.55 million tonnes of copper concentrate in the first six months of this year, an increase of 10.5% from the 9.55 million tonnes imported in the same period of last year, according to official customs data.

Traders have increasingly competed with smelters in recent months to purchase greater amounts of concentrate ahead of expected declines in TCs, hoping to capitalize on better margins, market sources told Fastmarkets.

“Traders surprised us again and again over the past few months with their low purchase prices,” the smelter source said.

Several trader purchases at as low as $40 per tonne were reported to Fastmarkets recently, $13-15 lower than the levels at which smelters were buying.

Fastmarkets’ copper concentrate TC index, cif Asia Pacific, was most recently calculated at $52.50 per dry metric tonne unit (dmtu) on July 12. This compares with quarterly averages for this year’s first and second quarters of $74.25 per dmtu and $57.95 per dmtu respectively.

No plans to cut production
Despite current spot TCs hovering at or even below the breakeven level for many smelters, the CSPT did not plan any collective production cuts among its members, sources told Fastmarkets.

Most of the CSPT are state-backed smelters and many of them signed a high proportion of their annual contracts at TCs of around $80 per tonne in late 2018, meaning the current low spot levels are not a significant enough threat to them to facilitate the need for production cuts, sources added.

Antofagasta deal does not undermine traditional annual settlement
A deal between Chilean miner Antofagasta and two principal participants of the CSPT, Jiangxi Copper and Tongling Nonferrous, for supply of copper concentrate for the first half of 2020 broke away from a decades-long tradition of settling an annual benchmark during Cesco Asia Week, which takes place annually in Shanghai in November.

But the move does not undermine the significance of the annual benchmark, market participants told Fastmarkets.

“It is an alternative way for smelters to lock in materials in a tightly supplied market, and it does not undermine the significance of benchmark. CSPT is determined to stick to the tradition of settlement based on annual benchmark,” a second smelter source said.

The two parties agreed to trade a total of 100,000 tonnes at TC/RCs of $64 per tonne/6.4 cents per Ib with 50,000 tonnes to be delivered to each smelter. A delivery time has not been specified as yet.

Julian Luk in London contributed to this report.

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