China to tighten metal ore inspection; copper markets fear bump-up in production costs

China's customs authorities are expected to tighten scrutiny over the iron and sulfur content of imported metal ores, sparking concerns among copper and gold industry players as such a move could add to production costs for smelters at a time when the market outlook is bleak, industry sources told S&P Global Commodity Insights Aug. 20.

Market chatter indicated Chinese customs would require testing of iron and sulfur content of metal ores that are being imported as gold concentrate, and authorities may instead categorize them as pyrites.

If total iron and sulfur content exceeds 58% in imported gold concentrates, it might be identified as pyrite, according to a smelter source.

Global copper concentrate supplies have fallen over the past few months, straining operations of copper smelters(opens in a new tab) in China, the world's largest copper processing country.

Smelters have seen copper processing charges falling to negative this year, and as a result some smelters have been eyeing concentrate with higher gold content and lower copper content to capture elevated prices of gold.

As the world's largest gold importer and consumer, China has exempted value added tax on imported gold ores and gold associated with copper ores under HS code 26030000.

But pyrite importers will be required to pay a 1% import tax and 13% VAT, and this tax could not be written off against other items, according to market sources.

A smelter source said that they had declared an upcoming imported ore shipment as pyrite instead of gold concentrate following the latest regulation change.

Another source said: "We are waiting for further clarifications from Chinese customs about how to define pyrite, [as] there [are] no clear specifications at the moment,"

Gold concentrates typically have more than 15g gold content and less than 3.5% arsenic content.

There are many gold concentrate materials that have iron and sulfur content exceeding 58%, a trader said.

Amid tight copper concentrate supply, more smelters have chosen to buy gold concentrates with relatively lower copper content due to cost concerns.

The treatment charge spreads between gold and copper concentrates have narrowed from $40/mt early this year to around $20/mt, according to a trader.

Market participants are wary about higher production costs due to elevated gold prices, with a procurement source saying that suppliers "will pay for it in the end."

'We will calculate associated production cost and restocking as per usual -- tax is part of the production cost and sellers just have to bear with it," a smelter source said.

Platts, part of S&P Global Commodity Insights, assessed CIF China clean copper concentrate treatment and refining charges at $4.0 per metric ton and 0.40 cent/lb, respectively, on Aug. 20, up by 10 cents/t and 0.01 cent/lb from Aug. 19.