Industry experts anticipate a potential rebound in fees for processing copper concentrate in China during the second quarter, following a significant drop to their lowest level in over a decade due to supply constraints. The upcoming maintenance season is expected to play a crucial role in the market dynamics, potentially alleviating the current challenges faced by the world’s leading refined copper producer.
The sharp decline in spot copper treatment charges (TCs) in China, plummeting to $12.70 per metric ton recently, has raised concerns regarding the impact on refined copper output and has influenced the performance of the benchmark copper contract on the London Metal Exchange (LME).
Craig Lang, an analyst at consultancy CRU Group, highlighted the expectation of temporary relief in the market balance through smelter maintenance activities and reduced utilization rates during March-April. This is projected to signal a potential turnaround in terms of processing fees, with a partial recovery anticipated in the second quarter. Similar sentiments were echoed by a prominent copper smelter, who preferred to remain anonymous.
As Chinese smelters have been expanding their capacity to meet the anticipated surge in copper demand driven by sectors like electric vehicles and renewable energy, disruptions in global mining operations have led to a scarcity of copper concentrate in the spot market. This unexpected tightness has shifted market balance projections from surplus to deficit this year.
The closure of major mines such as the Cobre mine in Panama has exacerbated the supply shortage, prompting hopes for production resumption post-Panama’s general election in May. Additionally, constraints in alternative materials like copper scrap and blister have further contributed to the supply challenges.
Despite the recent decline in spot TCs, large Chinese smelters predominantly secure their concentrate through long-term contracts at the annual benchmark price of $80 per ton. In contrast, smaller-scale smelters relying on spot supply are more susceptible to production cuts due to the prevailing market conditions.
China’s refined copper output reached a record high of nearly 13 million tons in 2023, with copper concentrate imports rising by 9.1% to 27.54 million tons during the same period, based on official Chinese data. While state-backed research indicates that spot TCs have dipped below smelters’ average manufacturing costs, proposals for output reductions made by top smelters in January have yet to be implemented according to sources familiar with the matter.