TRADE REVIEW: Stronger demand expected to pressure China Q1 copper concs TC/RCs

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, nickel 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.

Rising demand from Chinese copper smelters is expected to exert pressure on spot clean copper concentrate treatment and refining charges in the first quarter of 2025, potentially leading to a drop in spot transaction concentrate volumes.

China's copper smelting capacity has expanded due to new plants starting up and earlier idled capacities resuming production in recent months.

In September, Jinchuan Nonferrous fired up two new plants, located in Gansu and Guangxi provinces, with a total smelting capacity of 600,000 mt/year. Yunnan Copper also commissioned its relocated new 550,000 mt/year smelter in September.

Daye Hongsheng's 400,000 mt/year smelter resumed operation on Dec. 18 after a three-month closure due to a fire. Shandong Humon Smelting resumed a 100,000 mt/year production line after a fatal accident in August.

Miners pay treatment and refining charges to smelters to process ore into refined metal, with the agreed rate significantly influencing profitability for both parties. These charges typically decrease when the supply of copper concentrates is limited and demand increases, and rise when the supply improves and demand decreases.

Tighter supply is also expected to weigh on treatment and refining charges this year.

The startup operations of Freeport Indonesia's new 1.7 million dmt/year Manyar smelter in Gresik, East Java, have been temporarily suspended because of a fire. Freeport Indonesia has been in discussions with the Indonesian government to renew its copper concentrates export license, which expired in December, leading to uncertainty about outflows from the country.

Indonesia, which is one of the top exporters of copper concentrates in the world along with Chile and Peru, exported 2.2 million mt of copper concentrates from January to October 2024.

The actual smelting operation rate will be crucial in determining spot treatment and refining charges, as market participants remain skeptical that Chinese smelters will operate at full capacity following some recent declines in copper prices and premiums.

Spot treatment and refining charges have been trending down since Nov. 15, 2024, due to growing demand from smelters. Platts, part of Commodity Insights, assessed treatment and refining charges on a CIF China basis at minus 70 cents/mt and minus 0.07 cent/lb, respectively, on Dec. 31, down $7.4/mt and 0.74 cent/lb from Sept. 30.

In December, Chilean miner Antofagasta settled 2025 copper concentrate treatment and refining charges at record low levels of $21.25/mt and 2.125 cents/lb with Chinese copper smelters for 2025 loading term contracts.

Antofagasta settled treatment and refining charges with the Japanese smelter Pan Pacific Copper for loading in 2025 at $25/mt and 2.5 cents/lb.

Index-based pricing

A widening gap between benchmark and spot treatment and refining charges in 2024, driven by increased global copper smelting capacity and disruptions in the supply of copper concentrates, led traders to move away from benchmark-linked pricing for 2025 annual contracts, with many contracts being concluded on an index basis.

The 2024 benchmark for treatment and refining charges was set at $80/mt and 8 cents/lb, as negotiated between Antofagasta, Freeport and Chinese smelters.

Smelters have increasingly been willing to secure larger volumes under long-term contracts, while traders have preferred to follow spot prices, leading to more transactions being conducted on an index basis.

Some traders have initiated fixed-price offers to smelters for 2025 loading term contracts; however, deals have been constrained by wide bid-offer spreads.

Market participants expect rising annual contracts between traders and smelters and tighter copper concentrate supplies in 2025 to reduce spot trading activity, which reached an all-time high of 6.03 million mt for smelter purchases in 2024.

The purchasing spread between traders and smelters hit a record high in Q4 2024, because of tighter copper concentrate supplies and traders betting on limited production cuts from Chinese smelters.

Platts assessed the treatment charge spread between traders' purchases and smelters' purchases at $18.2/mt on Dec. 17, the widest ever. The spread was assessed at $15.6/mt on Dec. 31 after normalizing to the same quotation period, widening $9.9/mt from a year earlier.

The wider spread led to an increase in miner-to-trader deals, as miners generally expected the copper concentrate market to remain a sellers' market in the near term.

Direct sales from miners to traders through open tenders rose in 2024, with more annual tonnages being concluded on a fixed price basis rather than being linked to benchmarks.

Stable copper cathode import premium

The copper cathode import premium in China -- the additional cost that importers in China are willing to pay over the London Metal Exchange price for copper cathodes delivered to China -- was mostly stable in Q4 2024 due to thin spot liquidity and market participants' focus on term contract negotiations.

Platts assessed the copper cathode import premium at $60/mt on a CIF China basis Dec. 31, unchanged from Sept. 30. The premium had fallen and turned negative in Q2 2024 because of surging supply and weak demand, before rebounding in Q3 2024 in the wake of lower scrap availability, shipment delays from South Africa and improved consumption from the construction sector.

Copper demand in China rose marginally by 2% to 3% in 2024, supported by higher electric vehicle sales, demand from the power sector and better-than-expected air-conditioning sales. However, slower overall growth in the property sector weighed on gains.

In 2024, end-users showed a preference for cost-efficient copper cathodes because of cost concerns, resulting in increased demand for equivalence quality (EQ) cathodes compared with LME-registered brands.

Market participants anticipate this demand for EQ cathodes to grow even further in 2025 amid the possibility of US President-elect Donald Trump imposing tariffs on Chinese imports.

EQ cathodes meet specific quality standards but are not registered with the LME, making them $50-$60/mt cheaper than LME-registered grades.

Commodity Insights analysts downgraded their forecast for the 2024 LME three-month copper price to $9,274/mt, due to lower-than-expected December-quarter prices. The analysts forecast the 2025 price at $9,734/mt, with the upside tempered by expected pressure from a stronger dollar and potential slowing of concentrate demand in the first half of 2025.