Sunday, May 25, 2014

China copper smelters defer spot concentrate buys as betting on TC/RC rise

Reuters reported that Large Chinese copper smelters are deferring major spot market purchases of concentrates, betting on a rebound in processing fees that would make buying of the raw material in the second half more profitable.

Traders and sources at smelters said that sellers of concentrate pay treatment and refining charges to the smelters to convert the raw material into refined metal, with the charges deducted from the smelters' sale price. The charges paid rise or fall in line with concentrate supply or demand.

That is what happened last month, when the charges rose to USD 110 per tonne and 11 cents a pound after China's No.3 copper producer Jinchuan Group declared force majeure, leading to a brief surge in concentrate supplies.

TC and RCs have since declined, with the charges for spot standard concentrate to China traded at around USD 100 per tonne and 10 cents per pound this week. China is the world's top producer and consumer of refined copper.

The sources said that but Chinese smelters are expecting Indonesia to resume concentrate exports in the third quarter of this year after halting shipments in January. They also expect supplies from new mines to rise. Anticipating those developments to boost TC and RC charges, smelters are going slow on their concentrate purchases now.

Large smelters were not keen to take spot imports for May to July deliveries, said an Asia based trader at a global trading firm, which sells concentrates to China. The Chinese want to wait and see. While larger smelters are not keen to buy now, smaller smelters face delays in term imports of concentrate due to tighter credit checks by local banks in China.

How much Indonesia exports will be key in setting spot TC and RC charges, said a trade manager at a medium sized smelter in northern China. TC and RCs may move up to as much as USD 150 and 15 cents should Indonesian concentrate shipments be large in the H2.

Freeport McMoRan Copper & Gold Inc and Newmont Mining Corporation account for 97% of Indonesia's mined copper output and halted exports of concentrate in January due to Indonesia's ban. Newmont may cut output from June if talks with the government remain unresolved over export permits and taxes.

A trading manager at a large Chinese smelter in the east said that the firm expects Indonesia to resume exports around July, which could push up spot TC and RCs to China to more than USD 110 and 11 cents. Globally, new mines were also likely to step up production in the H2 of the year.

And the new Oyu Tolgoi copper and gold mine in Mongolia is ramping production after producing 25,300 tonnes of copper in concentrate in the Q1 with 2014 output being targeted between 135,000 tonnes and 160,000 tonnes of metal.

Source – Reuters

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