Copper fees reportedly plunge close to zero
CHINA’S copper smelters are reportedly at a critical juncture after fees for processing imported ore collapsed to single figures, raising focus on whether they will keep resisting pressure for production cuts.
This is according to a report by Mining.Com which showed that a steep decline in so-called treatment and refining charges had accelerated in March, with copper concentrate trading at levels more than 90 percent lower in the spot market than six months ago.
According to the report, that meant squeezed margins or losses for smelters and points to a sharp tightening of the market after a series of unexpected mine disruptions.
“Cargoes of copper concentrate from BHP Group Ltd.’s giant Escondida mine in Chile changed hands recently at terms as low as US$12 a metric tonne and 1.2 cents a pound to Chinese smelters, and at US$3 and 0.3 cents to at least one trader, according to people familiar with the deals.
“Fees last dropped to single digits in 2010, in the aftermath of the global financial crisis, according to researcher Wood Mackenzie. Next week, executives from at least 15 Chinese smelters are set to gather to Beijing
next week to discuss how to combat the lower fees, including potential production curbs,” Mining.com reported.
Commenting on the development, a Beijing-based Senior Analyst with Researcher CRU, Brian Peng, said smelters could also start routine maintenance ahead of schedule,
“The current spot fees have been significantly lower than the smelter’s break-even point and we expect larger production cuts or lower operating rates of Chinese smelters in the next few months,” he said.
Global copper demand had taken a hit as industry reels from high energy costs and slow consumer spending.
The economic outlook for China, responsible for more than half the market’s copper consumption, remains gloomy, and latest figures from Germany showed a severe slump in January manufacturing orders.
Macquarie’s Head of Commodities Strategy, Marcus Garvey, said: “smelter margins on an aggregate basis are okay, because they have enough volumes booked on contract terms.
“But on a spot basis, I would have thought almost everyone would be loss-making, and that is inherently not sustainable.”