TRADE REVIEW: China copper TC/RCs likely to be under pressure in Q2 amid tight ore supply

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts to new arbitrages, and to quality spread fluctuations.

China's clean copper concentrates treatment and refining charges could see continued pressure in the second quarter on prevailing tight ore supply and expanding smelting capacity, aggravating historical lows already reached in the first-quarter spot market.

Indonesia approved exports from the Grasberg copper mine only on March 17, which resulted in limited copper concs supply from the key producer since last December.

China's countertariffs on all US goods are set to impact US-origin copper concs and scrap exports to the country.

On the demand side, China's Tongling Nonferrous fired up a 500,000 mt new smelter in March and India's Adani is preparing to start its 400,000 mt smelter in Q2, which would tighten the market's concs supply.

Smelting production cuts have also been observed, including the Philippines' Pasar being put under maintenance and care, Chile's Altonorte suspending works on technical challenges and several small-to-medium-sized China smelters said to reduce copper concs usage in blast furnaces due to the shortage.

Copper concs spot supply has declined due to a low long-term contract coverage ratio, difficulties for large smelters to reduce their copper output target and the degradation of ore quality.

China's copper concs imports reached 4.7 million mt in January-February, up 1.21% year over year, while downstream cathode production rose 3.7% year over year to 2.3 million mt, customs data showed. Smelters were also switching to domestic concs, scrap and blister in cathode production amid the tight supply of imported concs.

Spot TC/RCs have been trending down since Dec. 19. Platts, part of S&P Global Commodity Insights, assessed treatment and refining charges on a CIF China basis at minus $29.10/mt and minus 2.91 cents/lb, respectively, on April 4, down $28.40/mt and 2.84 cents/lb from Dec. 31, 2024.

Demand for higher-grade concs

The increased usage of domestic concs, sulfuric concs and non-standard clean materials with higher impurity levels have led to a growing demand for clean concs to blend in furnaces.

The shortage of clean copper created blending difficulties, reducing demand for complex copper shipments that contain high impurity levels as participants cannot export them directly to China.

Low inventory levels of concs, along with the earlier delayed exports from Grasberg, pushed smelters to purchase more prompt-loading shipments in Q1, leading to rising demand for Asia-origin cargoes.

Spot volumes reach year-high

The low levels of term contract coverage, increasing sulfuric acid prices and limited production cuts in Q1 prompted smelters to restock copper concs.

Platts observed 1.6 million mt concs volumes traded by smelters, up 33% from the previous quarter.

Wide spreads between traders' and smelters' bids encouraged more direct sales between producers and traders via open tenders. Platts recorded 998,000 mt concs volume traded between producers and traders in Q1, up 19.7% quarter over quarter.

Smelters are seeking a clear direction on how to plan for production targets in Q2, as uncertainties surrounding index usage in term contracts, sulfuric acid prices and the copper arbitrage window weighed heavily on their profit margins.

Spot liquidity for copper concs is expected to slow down in Q2 as many small-to-medium-sized smelters decided to stay away from spot trades, opting instead to use alternative substitutes in cathode production or curtailing output.

Cathode premiums see support in Q2

China's copper cathode import premiums are expected to be supported in Q2 on the back of fewer cargoes in Asia as sellers divert cathode shipments to the US due to a widening arbitrage window.

The arbitrage between COMEX and LME surpassed $1,000/mt in March, following the announcement of Section 232 investigation on US imports of copper products.

Asian buyers faced shipment delays as sellers were moving cathode to the US market as much as possible.

The Platts Copper Cathode Premium on a CIF China basis hit a one-year high of $100/mt on April 7 due to limited offers to Asia and smelting difficulties in overseas smelters, up $40/mt from Dec. 31.

Although the US exempted copper from reciprocal tariffs, physical market participants were waiting for potential changes.

China's total copper imports from January to February fell 1.8% compared to 2024, China Customs Statistics showed. Imports from Chile dropped 41.6% on the year, which was offset by an increasing supply from Congo.

The outlook for copper prices is expected to remain volatile amid ongoing trade tensions and evolving market tightness, compounded by a weakening dollar and increased demand from the US inventory buildup, said Commodity Insights' analyst Patricia Barreto.