TRADE REVIEW: China's copper concs TC/RCs to be supported in Q3 by spot volume dip, output cuts

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.

China's clean copper concentrate treatment and refining charges may see some strength in the third quarter as spot liquidity and trade volumes are expected to fall on reduced demand from smelters amid production cuts and the usage of copper substitutes, market sources told S&P Global Commodity Insights.

In Q2, aggressive buying from traders, a willingness from smelters to lock in long-term supply, shipment delays from South America and a widened contango pushed spot TC/RCs to historical lows of minus $3.7/mt and 0.37 cent/lb, respectively, on May 31.

Chilean miner Antofagasta settled mid-year concs TC with Chinese smelters at $23.25/mt on June 27, a historical low for long-term contracts between producers and smelters.

Smelters have since reduced the usage of copper concs and demand for Q3-loading shipments has fallen due to prolonged plant maintenances, production cuts by 5%-10% and ample supply of anodes -- a substitute for copper concs in furnaces.

Reflecting these developments, Platts, part of Commodity Insights, assessed spot TC/RC on CIF China basis at $4.3/mt and 0.43 cent/lb, respectively, on July 15, up by $8/mt and 0.8 cent/lb from the low in May.

Elevated copper prices in Q2 boosted scrap and availability of anodes, which eventually helped smelters recover from a copper concs shortage, said Commodity Insights analyst Wang Ruilin. She forecast production of anodes in China to increase by 80,000 mt on the year to 420,000 mt in 2024.

Copper concs tonnages bought by traders totaled 1.78 mil mt in Q2, surpassing smelters for the first time -- by 596,000 mt -- as many producers tendered forward production volumes to traders in order to benefit from low TC/RCs.

Q4 market outlook mixed

Offers have been heard for Q4 shipments, but no deals were made amid split views on the market among buyers and sellers.

Smelters say that there is more upside than downside for TC/RCs in Q4due to a rebound in prompt-loading shipments. Indeed, there has been additional supply from Australia's Kamantoo copper mine since March, while Chile's Mantoverde copper mine commenced production in June.

Further relief in supply is also expected to come from the Indonesian government renewing Freeport's Grasberg copper concs export licenses in July and the Democratic Republic of Congo's Kamoa copper mine reaching phase 3 of concentrate output in June.

However, traders are of the opinion that new smelting capacity from China's Jinchuan Group, Indonesia's Freeport and PT AMMAN, and India's Adani will outpace the additional supply that is expected and continue to put pressure on TC/RCs in the year's last quarter.

Market participants also expect a widening of the spreads between clean and complex copper concs, especially those with high arsenic content. The spot appetite for complex copper concs is set to be limited by a variety of factors including higher-than-expected arsenic content seen from the Timok mine, a shortage of clean concs, high financing costs, sufficient complex quality stocks with Chinese blenders, and large offers of high arsenic content gold concs.

The tradable spread between Timok and standard clean copper concs was heard around $60/mt in early July.

Cathode premium challenges

China's copper cathode import premium is expected to recover slightly in Q3 as a wide futures contango supports traders in holding metals, but relatively high copper prices and firm domestic supply will still challenge refined copper premiums.

Cathode stocks at the Shanghai Futures Exchange warehouses reached a three-year high of 319,521 mt on July 5, and China's output of refined copper rose 5.9% on the year to 4.9 million mt over January-May, data from the National Bureau of Statistics showed.

The Platts copper cathode premium on a CIF China basis flipped to negative and reached a historical low of minus $14/mt on June 20. The premium has recovered slightly since on narrowing import losses and was assessed at $10/mt July 15, showed Commodity Insights data.

Copper demand in China is likely to fall in the short term, with end-users slowing down restocking activity in Q2 on high copper prices, and the European Commission imposing duties of up to 47.6% in June on Chinese EV imports.

Commodity Insights analyst Wang said she expects the copper market to go through a period of consolidation in the next one or two months, with prices fluctuating within a range, adding that China also needs to find a way through high inventories on the LME and SHFE as well as strong domestic cathode production that has accumulated this year.