The narrowing bid spreads between traders and smelters for CIF China copper concentrates, coupled with the increase in treatment and refining charges, has resulted in fewer direct spot deals between producers and traders.
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TC/RCs are what producers pay smelters to process copper ores to metal, and these charges are typically at a discount to exchange prices.
In June, according to data collected by S&P Global Platts, there were a total of 36 spot copper conc deals done, down from 41 in April. Traders contributed 28% to the overall number of deals done in June, down from 32% in April.
Meanwhile, spot TC/RCs fell to a 10-year low of $28.70/mt on April 8. It then rebounded to $45.90/mt on June 30, a 60% increase from the 10-year low, due to ample supply and lesser spot demand, Platts data showed.
Traders were reluctant to increase their physical positions as TC/RCs were on an uptrend, causing bids between traders and smelters to narrow to $6/mt on June 30, from $20/mt in April.
"It makes sense to sell to smelters directly when TCs between traders and smelters narrowed to below $10/mt," a producer said.
This has resulted in more direct sales between producers and smelters, causing some traders to pull away from spot tenders.
As such, many medium size trading houses were taking a wait-and-see stance, with no interest in increasing their physical positions.
Copper conc supply, on the other hand, is ample amid high copper prices. Production at new copper mines is chugging along smoothly, including operations at the Timok mine in Serbia, the Kamoa mine in Congo and the Mina Justa in Peru. The expansion at Indonesia's Grassberg mine has also injected additional tonnage into the market.
According to a source at a smelter, apart from lesser supply concerns given the high copper prices, the risk of strikes at Chile's Escondida and Spence mines have also eased.
The ample copper conc supply, however, was met by weaker demand. A large scale plant maintenance carried out over May-June and smelters' use of blister coppers had reduced copper conc demand. Blisters, crude coppers assaying about 99% Cu, can be used as a substitute for copper concs by some smelters in the manufacture of copper cathodes.
Further exacerbating the slow demand is traders preference of allocating term cargoes to smelters in the third quarter when TC/RCs are rising. This means that smelters will take delivery of more term contractual copper concs from traders and will thus reduce their demand from the spot market.