Freeport-McMoRan vp of sales and marketing Javier Targhetta
The Arizona-based copper and gold miner has not yet tabled a firm offer for TC/RCs, but it expects that contractual terms for next year will be “slightly lower” than the 2016 benchmark, which was set at $97.35 per dry metric tonne/9.735 cents, Targhetta said as the mating season for contractual supply kicked off in London during LME Week.
Freeport expects overall market conditions to be relatively stable next year, but disruptions to mine supply could be more substantial than they have been so far in 2016. Towards the end of next year, the market will begin to tighten ahead of a “very severe” deficit that will emerge in 2018, he said.
Following several years of under-investment in new mine supply, the market will face a deficit of at least 450,000 tonnes on a contained copper basis in 2018, Targhetta said.
Expectations that the benchmark will fall have been hardening in recent weeks as spot TC/RCs for concentrates have fallen sharply, with temporary disruptions at Escondida and Las Bambas bringing supply concerns back to the fore as contractual negotiations pick up pace.
The Metal Bulletin Copper Concentrates Index was calculated at $99/9.9 cents on October 31, down 2.2% month-on-month and at the lowest level since June.
Following a decline in the supply of high-arsenic concentrates and a sharp increase in supply of clean concentrates, particularly in Peru, the spread in terms for clean and complex concentrates has also narrowed significantly, creating a much tighter trading range in the spot market, he said.
“Our positions are much closer on both sides this year. We’ve had some initial discussions and all our customers seem to be more or less aligned in where they think the market will be in 2017,” Targhetta said.
Freeport has advised customers that it is planning to reduce volumes sold under contracts in 2017 and beyond, as a result of lower production at Cerro Verde and the company’s North American mines, he said.
“Volumes will be lower in the coming years, but not dramatically so,” he said.
However, production at Grasberg is set to remain strong, and it will be several years before additional volumes of concentrates from the Indonesian mine are processed domestically through a smelter that the Indonesian government is urging Freeport to build, he said.
“If the smelter does get built, I don’t think it will be operational any earlier than 2021,” Targhetta said.