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By Emily Chow
XIAMEN, China, Sept 10 Benchmark treatment
charges for copper concentrate next year are likely to fall a
sixth straight year, to their lowest since 2011 at about $60 a
tonne, traders and analysts said, as refined metal demand
returns and despite an expected recovery in supply.
Miners pay treatment and refining charges (TC/RCs) to
smelters to process their copper concentrate into refined metal,
offsetting the cost of the ore itself. Charges typically go down
when concentrate supply is tight and smelters have to accept
lower fees to get feedstock.
China's copper concentrate supply took a hit earlier this
year because copper mine operations in key supplier Peru were
curtailed by pandemic-induced lockdowns.
"Next year we do have some supply growth, but not really
until mid-year," said Colin Hamilton, managing director for
commodities research at BMO Capital Markets.
The supply growth, however, from the expansion of Chilean
miner Antofagasta PLC's Los Pelambres mine, BHP Group's
Spence mine in Chile and Ivanhoe Mines' Kakula
project in the Democratic Republic of Congo is not expected to
offset China's demand resurgence.
Hamilton expects next year's TC/RCs at $60 a tonne and 6
cents a pound "with a slight skew to the downside".
The annual TC/RC benchmark - usually agreed between miners
and smelters around the turn of a year - is referenced in
concentrate supply contracts worldwide, playing a significant
role in determining the profitability of miners and processors.
The benchmark has fallen every year since being struck at
$107 per tonne and 10.7 cents per pound for 2015. For 2020, it
was set at $62 per tonne and 6.2 cents per pound.
Spot TC/RCs - rather than long-term - have
been hovering around $51.50 a tonne since late July this year.
Spot TC/RCs are at their lowest since November 2012 because
of the mine disruptions and the rapid recovery in copper demand
in top consumer China that revived smelter operating rates there
after a pandemic-triggered slump.
While TC/RCs will see support from an expected recovery in
concentrate supplies next year, with 2020's tightness loosening
to a surplus, next year's smelter demand would limit gains.
Chilean miner Antofagasta Plc has already inked
concentrate supply deals for the first half of 2021 with China's
Jiangxi Copper and Tongling Nonferrous
Metals Group at a TC of $60.8 per tonne, Reuters
reported in July.
"I estimate it (TC/RC benchmark) will decrease slightly as
there will be increasing domestic demand next year," said a
copper trader at the sidelines of the China International Copper
Forum in the southeastern city of Xiamen.
The most-traded copper contract on the Shanghai Futures
Exchange has jumped 33.5% since March due to China's
strong construction and infrastructure activities.
(Reporting by Emily Chow in Xiamen, with additional reporting
by Mai Nguyen; Writing by Tom Daly; Editing by Tom Hogue)
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