China's copper concentrate TCs touch 10-year low, squeezing smelter margins

Singapore — Margins for China's copper smelters are under intense pressure as treatment charges reach a 10-year low and cathode demand remains weak, prompting several smelters to bring forward maintenance plans or reduce raw material usage to minimize spot buying, market sources said March 29.

S&P Global Platts assessed CIF China clean copper concentrate treatment and refining charges or TC/RCs at $29/mt and 2.9 cents/lb March 29, a 10-year low, and down 27.5% since touching $40/mt and 4 cents/lb on Feb. 1.

A source at a major Chinese smelter said the sharp falls in TCs were unexpected and the situation for smelters was currently "quite difficult."

Shipment delays for Chilean cargoes in January, an unofficial ban imposed on Australian concentrate imports since last December, a slowdown in the startup of new mining projects due to the global pandemic and increasing impurities in the output from Chile's major Collahuashi mine have all contributed to tight spot supply, market sources said.

Some Chinese smelters have also reduced term contract volumes for 2021 after buyers faced difficulty reaching agreement with sellers during negotiations last December.

Both traders and smelters were now buying in the spot market, which has pressured down spot TCs significantly, market sources said.

Copper cathode production data indicated that smelter production rates were high, pressuring TCs lower. China's copper cathode output rose 7% year on year to 1.63 million mt over January-February, National Bureau of Statistics data showed.

Copper prices hit a nine-year high at $9,500/mt Feb. 25, and the price spread between scrap copper and copper cathode had widened threefold to Yuan 6,585/mt ($1,013/mt) on March 29 from Yuan around 2,000/mt last October.

End-users were either buying scrap copper as substitute or replying on existing inventory to delay procurement, and copper cathode premiums have fallen to negative in China's domestic market since mid-February.

Sulfuric acid prices remain firm in eastern China at Yuan 400/mt ($61.50/mt), providing some relief to the production pressures for regional smelters. But many other smelters were struggling to break even in regions where sulfuric acid prices remain below Yuan 200/mt.

Treatment charges, copper cathode premiums, sulfuric acid prices and copper prices are the key elements in determining a copper smelter's profit margin.

"I believe most smelters in China are not making a profit in the current market," a trader said.

Although Chinese smelters are unlikely to cut production significantly, some have already implemented strategies to trim output by using less copper concentrate or more lower-grade materials, or advancing maintenance schedules, market sources said.

"We are buying more domestic concentrate to replace imported ores," one procurement source said.

With production of sulfuric acid resulting in losses in northern China, smelters there were heard buying blister to produce cathode.

"It can help to reduce usage of copper concentrate and also produces less sulfuric acid," a smelter said.

Sources at a few smelters surveyed said there was no incentive to maintain high operating rates when treatment charges were low and they were planning maintenance in Q2 to minimize operations.

However, sources were more optimistic about the second half of the year, when they expected treatment charges to rebound as the Spence copper mine in Chile, Grassberg in Indonesia and Timok in Serbia were all slated to ramp up output.

"I think the market has reached the bottom and many smelters are very resistant to buying below $30/mt," one source said.