The competition for mined copper resources is anticipated to increase, posing a challenge to Chinese firms responsible for half of the world’s refined copper production. Despite significant output cuts affecting the metal market, it is unlikely that these cuts will be substantial.
Chinese copper producers, primarily state-owned, face pressure to uphold or elevate production targets to support the sluggish growth in the world’s second-largest economy. The tightening of concentrate supplies results from disruptions, including the closure of First Quantum’s Cobre mine in Panama and production cuts by Anglo American.
To secure supplies, Chinese smelters have had to endure a nearly one-third reduction in treatment charges (TCs) – the fee for converting concentrate into refined copper – over the past month, as reported by data from pricing agency Fastmarkets.
Some Chinese smelters, in discussions with Reuters, indicated the possibility of scaling back refined copper production in the second quarter, although specific quantities were not disclosed. The tightening margins are expected to compel smaller, higher-cost smelters that heavily depend on spot purchases of concentrate to potentially reduce or cease production in the upcoming months, according to analyst Craig Lang at consultancy CRU Group.
Lang suggested that treatment charges (TCs) could potentially reach a low point in the $40s before prompting reductions in smelter capacity, which may help alleviate the tight market conditions. Spot TCs in China declined to $48.2 per metric ton on January 5, marking the lowest since July 2021 and representing a 40% drop from the annual benchmark of $80 per ton, which experienced its first decrease in three years.
TCs serve as the primary source of income for smelters, decreasing when copper concentrate availability is limited or demand is subdued and increasing when supplies are abundant. An official from a major copper mining company noted that smelters, both large and small, are seeking spot cargos for delivery in the first and second quarter.
The decline in treatment charges (TCs) is also influenced by the expansion of smelting capacity, indicating a growing demand for concentrates. Official data revealed a substantial 13% year-on-year increase in China’s refined copper output to 11.8 million tons in the first 11 months of 2023. Analyst Emily Brugge at consultancy Wood Mackenzie projected a nearly 5% rise in primary smelting capacity this year, with significant projects underway in China, Indonesia, and India.
