Copper smelters in China recently purchased approximately 60,000 metric tons of copper concentrate that was originally headed for Japan. Tongling Nonferrous Metals Group Co. obtained more concentrate than other Chinese smelters, according to an anonymous Shanghai trader. The Chinese smelter purchase increased spot treatment and refining charges (TC/RCs) to approximately $120 per ton, according to industry participants.
TC/RCs are paid to smelters by miners to convert concentrate into cathode. They increase when smelter production is below capacity or a sufficient amount of concentrate is available. Smelters welcome the higher fees because they are a primary revenue source, especially when smelters are scrambling to produce more of the metal due to increasing prices.
Tongling is the second largest producer in China by output. It settled term TC/RCs with BHP at $72 per ton and 7.2 cents per pound on a six-month basis. This is a 55 percent increase from the $46.50 per ton and 4.65 cents per pound arranged last year. Tongling anticipates importing 40,000 tons of concentrate from BHP during the first six months of this year, which is 6,000 tons less than that period last year.
According to participants, this temporary increase in spot TC/RCs does not change the long-term situation within the sector. A mining supply shortfall is likely to cause prices to rise even higher during the second half of the year and will keep processing fees lower. The anonymous Shanghai trader equated diverting concentrate to China to moving bricks.
With long-term supply demand fundamentals being unaffected by the short-term change, investors are hurrying to sink their money into the metal. Supply issues are not likely to be corrected by miners in the near future so things look good for copper prices. This significant development within the spot market will soon be forgotten and it will be back to business as usual.
