BEIJING/HANOI : Global miners and Chinese smelters could set higher annual treatment and refining charges (TC/RCs) in 2023 as rising copper concentrate supply is expected to outpace smelting capacity growth.
The TC/RCs benchmark, referenced in supply contracts globally, is usually taken from the first settlement between a major miner and a smelter in top copper consumer China in annual negotiations.
“2023 undeniably looks like a strong year for concentrate growth. Moreover, it comes at a time of limited Chinese smelter capacity addition,” said Colin Hamilton, a managing director at BMO Capital Markets.
“This raises the spectre of a smelter bottleneck for the first time in over a decade, where smelter utilisation is maxed out, forcing excess concentrate to be stockpiled or forced offline via economics,” he added.
BMO forecast the 2023 benchmark at $85 a tonne and 8.5 cents per pound, with an upward skew.
This year the benchmark was set at $65 per tonne and 6.5 cents per pound, but China’s top copper smelters already lifted their floor TC/RCs in the fourth quarter to a five-year high at $93/9.3c due to a supply glut.
“Buyers will have an upper hand in negotiation,” said a Chinese smelter source, who sees the TC jumping to $100 a tonne.
Graphic: Copper concentrate treatment charges Copper concentrate inventories at major Chinese ports https://fingfx.thomsonreuters.com/gfx/ce/gdvzqydbbpw/TCRC1.png
Three sources in China saw the 2023 TC being set at $80-$90 a tonne, and another Chinese smelter source saw the TC rising above $100 a tonne.
Miners pay TC/RCs to smelters to process copper concentrate into refined metal, offsetting the cost of the ore. TC/RCs rise when more supply is available and smelters can demand better terms on feedstock.
Globally, the 2023 concentrate market is also seen in surplus, said Nick Pickens, a research director at consultancy Wood Mackenzie.
Pickens predicts benchmark TC/RCs to be 20 per cent-30 per cent higher than 2022, or around $78/7.8c to $84.5/8.45c.
Market participants pointed to Teck Resources’s Quebrada Blanca Phase 2 project in Chile and Anglo American PLC’s Quellaveco project in Peru that would contribute to the rising supply of concentrate.
Meanwhile, Chile’s Codelco said it would extend maintenance work at its Chuquicamata smelter to 135 days, from 90 days initially.
Graphic: https://fingfx.thomsonreuters.com/gfx/ce/lbvggnbzevq/TCRC2.png
Working in miners’ favour, however, is China’s easing of COVID-19 curbs, which could see higher refined copper demand and smelters consuming more feedstock.
“We have Daye’s new smelter ramping up very smoothly and existing Chinese smelters running at very high capacity to satisfy the domestic market which looks promising after the recent (easing) announcements from the Chinese government,” a source at a miner said.
Daye Non-ferrous Metals’s Hongsheng 400,000 tonne-per-annual refined copper smelter started commissioning a test run from Oct. 23, sources said.
Graphic: China’s refined copper output https://fingfx.thomsonreuters.com/gfx/ce/xmpjkorqkvr/TCRC4.png
“We can not deny that market will be more favourable to smelters in 2023 than in 2022 and therefore it is reasonable to expect the annual TC/RCs to suffer a moderate increase in the annual negotiations to the 70s level,” the miner added.
After years of online meeting due to COVID, some Chinese smelters will meet miners in person in Singapore to discuss TC/RCs settlements, sources said.
Graphic: China’s copper ore and concentrate imports https://fingfx.thomsonreuters.com/gfx/ce/klpygkdbxpg/TCRC3.png
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