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Trade Review: Asian copper concentrate TC/RCs brace for uncertain Q1 on low demand, supply woes


Ample supply pressured Q4 spot market

Q1 spot copper concentrate market mixed

Fewer term contracts concluded for cathode

  • Author
  • Lu Han
  • Editor
  • Anthony Poole
  • Commodity
  • Metals Shipping
  • Tags
  • copper United States
  • Topic
  • Metals Trade Review

Asian demand for copper concentrates will likely be squeezed in the first quarter as several regional smelters undergo maintenance, while clean copper concentrate output is expected to lag consumption, placing downward pressure on treatment and refining charges.

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Major Japanese smelters will undergo maintenance in the first half of 2023, according to market sources. Daye Nonferrous will upgrade 600,000 mt/year production line from March till June, said smelters.

Some Chinese smelters also faced production issues in the fourth quarter of 2022, resulting in high inventories and low spot demand.

At the same time, ample supply of road-transported concentrates pressured spot sales of standard clean copper concentrates.

China imported 1.4 million mt of copper concentrate from Kazakhstan during January-November last year, up 81.3% from a year ago. Kazakhstan was ranked the third-largest copper concentrates exporter to China in 2022, up from the fifth in 2021. At the same time, China imported 1.2 million mt of copper concentrate from Mongolia, the fourth-largest exporter to China in 2022.

The Platts daily clean copper concentrate treatment charge touched a one-year high of $90.80/mt CIF China Nov. 9 last year, up 52% from Jan. 3, 2022, S&P Global Commodity Insights data showed. On Jan. 6, Platts' daily clean copper concentrate TC stood at $82.60/mt.

Spot TC/RC started falling around mid-November last year mainly due to road blockage at Peru's Las Bambas mine and shipment delays from Chile's Escondida copper mine following huge waves at the port. Nationwide protests in Peru in December and January also impacted domestic transportation of regional copper concentrates.

In addition, spot buying from several Chinese smelters was also heard to have surged late-last year due to sudden production plan changes.

Spot TC/RC fell to one-month low of $83.90/mt and 8.39 cents/lb, respectively on Dec. 23.

Low spot activity in Q4

Spot transactions plunged in Q4 as smelters shied away from the spot market in the face of high financing costs, year-end inventory control, and expected rise in TC/RCs on the back of slowing demand from smelters.

Platts recorded a total of 990,000 mt spot transactions in Q4, compared to a total of 1.5 million mt spot transactions in Q3.

But smelters' transactions picked up in December due to replenishing needs in the wake of supply issues and as slow discussions of annual term contracts increased demand for spot cargoes.

Platts observed that 70% of spot transactions were bought by smelters in Q4, compared to 49% in Q3, S&P Global data showed.

Slow demand in Q1; few offers from producers

In Q1, the spot market sentiment is expected to be mixed. Demand from large-size smelters will likely be limited, while South American producers are experiencing a seasonal low production period.

Several northern China smelters claimed that they have no spot demand before April and offers of road-transported materials remained abundant.

And while near-term supply has been affected by production and transport disruptions in South America, the longer term impact remains difficult to gauge.

Peru's road blockade around Las Bambas mine and the recent political turmoil in the country have also added to spot supply concerns this year.

In addition, the Panama government and First Quantum are yet to reach an agreement on the new contract over Cobre Panama copper mine production, leaving an uncertain market outlook. The mine was expected to produce 340,000-350,000 mt of copper in 2022.

Meanwhile, Chile's Quebrada Blanca phase two project, which is expected to export first concentrate shipment in March, might help lift supplies from Q2 onwards.

"The recent disruptions on the mine side have put some downward pressure on spot concentrate TC. However, we do not expect the spot TC to fall significantly due to large concentrate surplus in H1 2023. It is supported by high stock levels at Chinese copper smelters as well as sufficient concentrate supply under long-term contracts," said Wang Ruilin, senior analyst at S&P Global. "Having said that, it is important to keep an eye on the development of these disruptions."

Copper cathode import premiums on roller-coaster

In the metals market, import premiums for copper cathode reached a one-year high of $146/mt on Oct. 21, 2022, supported by tight domestic supply and scrap shortage, before falling back to a six-month low of $37/mt on Dec. 30.

The decline was attributed to the weakness of Yuan against the US dollar, slow demand during winter period, high financing costs and increased supply.

On the supply side, Chinese smelters ratcheted up production in Q4. Daye Non-ferrous started its 400,000 mt new production line in October last year, Tongling Nonferrous expanded production capacity in Q4 while power restrictions slowly eased across China.

Simultaneously, copper cathode imports to China increased between October-November as the arbitrage window widened on lower LME copper prices, which helped ease domestic inventory tightness.

Although China's copper cathode demand is expected to rise 1.9% on the year in 2022, supported by the energy transition sector, according to S&P Global Commodity Insights forecasts, end-users have expressed doubts that this would translate to higher cathode premiums and are, therefore, reluctant to take on more annual contracts.

Major producer Codelco offered a premium of $140/mt to China and $235/mt to Europe for 2023 annual contracts, up 33.3% and 84%, respectively on the year. Some large-sized traders have said they were not buying due to price concerns.