TRADE REVIEW: China Q4 copper concs supply could tighten as smelting capacity expands

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 are expected to be under pressure in the fourth quarter of 2024 as supplies tighten due to increasing demand from expanding smelting capacity.

The demand for clean copper concentrates for loading in the fourth quarter has been strengthening due to new smelting capacity coming online and as many Chinese smelters resume production after plant maintenance in the third quarter. Most smelters are also preparing for their copper production requirements in the first quarter of 2025, boosting clean copper concentrate demand.

Copper concentrate treatment and refining charges rise when supply is higher and demand slows, and fall when supply declines and demand rises.

Strikes at the Escondida and Caserones mines in Chile hurt spot treatment and refining charges in August.

China's Jinchuan Nonferrous fired up two new plants in Gansu and Guangxi provinces in September, with a total smelting capacity of 600,000 metric tons per year. Yunnan Copper also commissioned its new 550,000 t/y smelter in September that was relocated to the Anning district in the province.

India's Adani Group plans to start up its new 500,000 t/y copper smelter in November, with 400,000 t/y of copper production feed to be sourced from copper concentrates, according to a company source.

Indonesia is expected to export lower copper concentrate volumes in the fourth quarter due to the ramp-up of two smelters operated by Freeport-McMoRan’s Manyar and Amman Mineral Nusa Tenggara with a combined capacity of 700,000 t/y.

Construction of the Kamoa-Kakula 500,000 t/y smelter in Central Africa is also scheduled for completion by end-2024, suggesting the possibility of reduced concentrate exports from 2025.

However, market sources expect a decline in smelter utilization rates in 2025 due to the expected low treatment and refining charges in the fourth quarter of 2024. Several smelters have expressed concern that production losses have been significant, with the treatment charge trading below $30/t, which is considered a global benchmark for the charges.

Market participants are also eyeing scrap, blister and anode supplies, as these play a key role as alternative feed material in the copper production process when concentrate supply is tight.

In September, treatment and refining charges strengthened due to increased spot supply as smelting production was affected following a fire incident at China Daye’s 400,000 t/y Hongsheng copper plant and unexpected production maintenance at LS-Nikko Copper's 400,000-metric-ton plant for 10 days in South Korea, according to market sources.

In October, Freeport’s Manyar smelter in Indonesia also experienced a fire incident.

On Sept. 12, Platts assessed spot treatment and refining charges at a four-month low of minus 80 cents/t and 0.08 cent/lb, respectively. The charges have since rebounded to $9.5/t and 0.95 cent/lb as of Oct. 16. Platts is part of S&P Global Commodity Insights.

Spot transactions spike

Spot copper concentrate liquidity has risen after September, as smelters returned from plant maintenance and started restocking for Q4-loading shipments.

Limitations in buying gold concentrate due to a Chinese customs tax, reduced blister supply following the removal of Chinese tax subsidies for scrap used in making blister, and healthy sulfuric acid demand from the automotive sector have also encouraged smelters to buy more copper concentrates.

Concentrate offers rose following the fire incident at Daye, as suppliers sought new buyers for the October and November shipments diverted from Daye.

A volume of 2.17 million metric tons was traded in the third quarter, with smelters representing 78% of the tonnage, according to Commodity Insights data.

Tender volumes fell significantly in the third quarter as some small- to medium-sized producers had concluded 2025 tonnage targets in the second quarter, and some producers awaited production budgets for 2025.

Smelters were hesitant to accept an M+5 pricing period, with M representing the current loading month, because it results in a longer wait for buyers to reach a final settlement and ties up bank credit lines for an extended period.

Long-term contract negotiations were also delayed in the third quarter, compared with previous years, as producers held back from offering, while the gap between trader offers and smelter bids widened.

Cathode premiums rise

China’s copper cathode import premiums for 2024 peaked in the third quarter because of lower scrap availability, shipment delays from South Africa and improving demand from the construction sector.

Copper stocks at the Shanghai Futures Exchange warehouses fell by 179,113 metric tons to 140,408 metric tons in the third quarter, even as China's refined copper output rose 6.2% on the year to 8.9 MMt over January-August, according to the latest National Bureau of Statistics data.

EQ cathodes, non-London Metal Exchange-registered grade A cathodes, have gained popularity due to rising cost concerns. China’s total imports from Congo jumped 71% on the year to 915,464 metric tons from January to August.

Chinese smelters also exported cathodes more actively because of higher international prices, with total outflows over January-August soaring 85% on the year to 402,855 metric tons.

Weaker average domestic copper prices in August led to increased restocking from wire and cable manufacturers following healthy orders from the grid, wind and solar power generation sectors, Commodity Insights copper analyst Wang Ruilin said.

The Platts Copper Cathode Premium on a CIF China basis hit a one-year high of $80/t on Sept. 18. The premium fell to $61/t on Oct. 16 as high copper prices slowed downstream restocking.