Copper refining fees will jump next year
Release time： 2021-12-31 18:07
The cost of processing copper raw materials that miners deliver to smelters will rise sharply next year, industry sources said, as reductions in smelting capacity reduce their long-held bargaining power.
A South African smelter executive said miners would pay annual TC/RCs of $75 a tonne, or more than 7.5 cents a pound, for copper concentrate processing next year.
"I think the refining fees will go up further, probably between $75 / ton / 7.5 cents/pound to $95 /9.5 cents," the executive said.
The figure is well above next year's contract price estimates of $50 a tonne or 5 cents a pound, discussed by mining sources, but both confirm higher refining fees for long-disadvantaged smelters.
The cost miners pay to process copper concentrates tends to rise when copper ore production is plentiful or when smelters are using less capacity.
That cost has been under pressure for years.
In January, Japanese smelters set 2010 copper concentrate processing costs at $46.5 per ton or 4.65 cents per pound, while mid-year costs were set at a record low of less than $40 per ton or 4 cents per pound.
At the time, that was less than the meagre cost of production, according to a Japanese industry expert. Japan's two biggest smelters cut copper production in the second half because of low concentrate fees and weak demand.
The production cut, along with news that smelter Sterlite Industrie may close its Indian smelter in the near future, has cut into a chronic glut of global refinery capacity that had strained smelters' bargaining power.
Another smelter source said spot copper refining fees have recently risen to around $80 per ton or 8 cents per pound, and there are rumors that some spot market dealers have or will set the fees above $100 per ton or 10 cents per pound.
Last month, a Chinese smelter executive said spot Asian refining fees would hit as high as $100 a ton, or 10 cents a pound, if Sterlite closed its smelter. Spot refining fees in China have jumped from $15-20 a ton, or 1.5-2 cents a pound, in July to $60 a ton, or 6 cents a pound, in September.
The rise in spot refining fees is due to lower demand for ore from Chinese smelters, which account for 60 per cent of global demand. Two sources in Asia had said on Tuesday that Asian smelters were still holding back on buying copper concentrates.
Copper refining fees have fallen in recent years as smelting capacity has far outstripped the amount of concentrate miners can supply, forcing smelters to bid for concentrate and accept processing fees at almost any price.
South American sources say the tide has now turned completely. Concentrate markets are no longer tight and smelting capacity has been cut by partial closures.
In addition, the LME benchmark copper price is near a record high of $8,940 a tonne hit in July 2008 and is now trading around $8,400 a tonne, meaning miners' margins will remain high even if they pay smelters higher refining fees.
"A processing fee of $75 a ton or 7.5 cents a pound is negligible," the source said. "Copper prices are already above $8,000 a ton."
But not everyone agrees. Javier Targhetta, president of Spain-based metal smelting company Atlantic Copper, said Tuesday that he expects the fundamentals of a tighter concentrate market to remain unchanged, while smelting costs will remain low.
Targhetta doesn't see much improvement in tight concentrate supplies. Smelting costs as a whole will remain under pressure, it added.