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, 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.
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Spot copper treatment and refining charges (TC/RCs) are expected to recover in Q2, on easing supply disruptions and seasonal maintenance at several Chinese smelters, despite the potential Indonesian export ban and political instability in Peru.
Multiple supply disruptions pushed down spot TC/RCs in the first quarter.
Platts daily clean copper concentrate TC dipped to a quarter-low of $76/mt CIF China on March 3, down 8.5% from Jan. 3 and 16.2% lower from a one-year high of $90.8/mt reached on Nov. 9, 2022, S&P Global Commodity Insights data showed.
But with the Quebrada Blanca Phase 2 (QB2) project set to export its first shipment in May-June and resumption of concentrate transport from Peru's Las Bambas mine, spot supply concerns are beginning to wane.
Spot transactions fall in Q1
The potential recovery in spot TC/RCs will be followed by a period of stifled growth and sluggish spot transactions.
In Q1, total transacted volumes fell on the quarter, as smelters increased term contract volumes for 2023 on account of a higher benchmark of $88/mt for the current year, with traders bearing the brunt of the disruptions.
Platts recorded a total of 760,000 mt in spot transactions in Q1, compared with 990,000 mt in Q4 2022.
Sellers prioritized fulfilling term contracts and had limited spot volumes to offer except for in-land transported concentrates.
Traders' transactions made up 47% of the total observed volume in Q1, with some having to cover oversold contracts at sharply higher TCs.
This discouraged traders from buying actively in March after supply disruptions began to ease, though average producer-to-trader differentials in Q1 still widened to minus $9.3/mt, $1.4/mt lower than the Q4 2022 average.
Q2 spot TCs set for gains
Smelters are hopeful of a turnaround in the second quarter, as several of them undergo planned maintenances from March to June -- including Jiangxi Copper, Tongling Nonferrous and Zijin Mining.
Notably, Daye Nonferrous' old 300,000 mt/year unit was shut for maintenance on March 22 and is expected to resume after five months.
"With QB2 starting shipments from Q2, we expect copper smelters will be better supplied on the back of a surplus in the concentrate market. This is also reflected in CSPT's [China Smelters Purchase Team's] newly settled floor TC at $90/mt for Q2, indicating smelters are optimistic of spot TC increases," said S&P Global Market Intelligence Senior Analyst Ruilin Wang.
As normal delivery of concentrates resumes, traders are expected to face pressure to offload material in the spot market, which could drive spot TCs higher, sources said.
More tenders from miners are also expected in Q2, as buying interest from traders waned, they added.
Some traders remained conservative on the potential spot TC increase, citing the ongoing political instability in Peru and slower-than-anticipated repair works at the Mejillones and Ventanas ports in Chile.
A potential concentrate export ban by the Indonesian government will also be in focus following news that Freeport Indonesia had received a recommendation to ship 2.3 million mt of its Grasberg concentrate -- equivalent to its yearly export quota -- by June this year.
While the government is expected to release additional regulations to support miners before their smelting operations are ready, sources said Japanese and South Korean buyers may find themselves in deep water if the miners are not allowed to deliver contractual volumes after June.
Copper cathode import premiums eye growth
China's cathode imports were stifled by huge import losses through most of Q1, as downstream demand was slow to recover and LME copper prices remained elevated.
Platts daily Chinese copper import premium assessment averaged at $32.4/mt for Q1, down 64.5% from the previous quarter, S&P Global data showed.
However, weak international macroeconomic factors saw LME copper prices fall briefly, allowing sellers to import material in H2 March.
Stocks at bonded warehouses fell 8% in the last two weeks of March to 175,000 mt, with SHFE stocks plunging 40% to just over 70,000 mt over the same period.
While China continues to destock, the domestic market is seeing signs of demand recovery, giving some sellers confidence to hold onto higher offers for April-May arrival cargoes.
"We expect higher copper consumption driven by electric vehicles and photovoltaic industries under green energy transition, and a seasonal rise in construction activity and air conditioner production," said Wang from S&P Global.
TRADE REVIEW: Recovery in sight for #Asian#copper concentrate TC/RCs in Q2, but uncertainties lingerApril 17, 2023
🔸Supply disruptions pressured smelters in Q1
🔸Import losses limit cathode trading ahead of peak season