06 Jul 2023 | 01:30 UTC

TRADE REVIEW: Blistering rally in Asian copper concentrate TC/RCs likely to extend into Q3

Highlights

Midyear benchmark settles at $88/mt between Antofagasta, Asian smelters

Slow demand to outweigh impact of potential supply risks in Q3

Import cathode trade hampered by closed import arbitrage, muted demand

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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, 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.

Spot copper concentrate treatment and refining charges will likely extend gains in the July-September quarter following a searing rally in Q2 that took spot TCs past the $90/mt level -- the floor price set by China's leading copper smelters in end-March.

As Chinese smelters entered a period of maintenance and deliveries of delayed cargoes due to supply disruptions in Q1, most smelters found themselves sitting on high inventories, which curbed buying interest.

The midyear TC/RC benchmark between major miner Antofagasta and Asian smelters was heard to have been concluded at $88/mt and 8.80 cents/lb on July 3, up $13/mt and 1.30 cents/lb from the 2022 midyear benchmark and equivalent to the 2023 annual benchmark level set in November last year.

First shipment from Chile's Quebrada Blanca Phase II -- a major contributor of supply growth in 2023 -- is expected at around July-August, which could add further pressure in Q3.

The Platts daily clean copper concentrate treatment charge averaged at $87.80/mt in Q2, up 10.8% from an average of $79.30/mt for Q1, S&P Global Commodity Insights data showed.

Spot activity plunges in Q2

Spot transacted volumes were largely stable in April-May but plummeted in June on weak buying interest -- a trend likely to persist in Q3 as smelters digest high stockpiles.

Weak sulfuric acid prices and slow domestic cathode consumption also dampened smelter demand.

Consequently, traders also showed little interest in buying cargoes, which could cause producer-to-trader differentials to narrow further and may have driven tender activity during this period.

Platts recorded a total of 17 tenders in Q2 compared with 11 in the same quarter last year, S&P Global data showed.

Q3 spot TCs to stay higher

Both sides of the market continue to report thin buying interest for spot cargoes, though they agree that qualities with low gold and silver will likely maintain good spot liquidity in Q3.

Anticipated demand from other smelting projects, including Baiyin Nonferrous and Guangxi Nanguo Nonferrous Phase II, are yet to materialize, both of which could be delayed to 2024, market sources said. The two projects would contribute a total of 500,000 mt/year of smelting capacity.

Several other smelters are also preparing for maintenance works in September, in addition to the extension of ongoing maintenance works at Daye Nonferrous' old line, initially scheduled to complete in August.

Some sources flagged the possibility of supply disruptions at Las Bambas in H2 2023, though others reported hearing that increased security measures in the region could be extended beyond July.

Despite signs of a softening market in Q3, some sources see room for a further increase in spot TCs.

"Ample stocks at smelters is a supporting factor, but an increase in demand for cargoes from September onwards could limit the growth," said S&P Global Market Intelligence Senior Analyst Ruilin Wang. "With spot TCs going beyond the annual benchmark of $88/mt, traders will also try to maximize delivering through term contracts."

Import cathode premiums may stay pressured

The Q2 import cathode market in China was characterized by short and infrequent arbitrage windows, with demand unable to keep up with higher premiums.

"Every time the window opens, everyone will try to import, which will quickly bring the market back down," said a trader. "It's very different from before, when traders would continue importing regardless of the arbitrage."

Rising LME copper prices, as well as a depreciating Chinese Yuan towards the end of the quarter were also a challenge for traders.

While domestic stocks sharply declined from May to mid-June, as lower copper prices encouraged downstream fabricators to restock, the rebound in copper prices has since caused demand to ease off.

Platts daily Chinese copper import premium assessment averaged at $49.50/mt in Q2, up $17.1/mt from the previous quarter, S&P Global data showed.

Import cathode premiums in Q3 will likely remain pressured as the industry heads into a traditional lull season, coupled with an increased supply of import material, market sources anticipate.

"Some consumers restocked in advance when copper prices fell in May, so I expect demand in June will be even worse," said a trader.

"We expect to see some growth in cathode imports in H2 2023, with stocks in LME warehouses in Asia flowing into China and more imports also expected from the DRC and Russia," said Wang.

Stockpiled EQ grade cathodes at the DRC's Tenke Fungurume are expected to reach Chinese shores around July-August, which could further dampen demand for more expensive LME-registered brands.

Market sources noted that any improvement in demand from the renewables sector failed to fully offset the impact of a weak property sector and they were, therefore, not confident if government stimulus would be able to revive the market amid the macroeconomic uncertainty.