Asia copper processing fees hit highest in 5 mths as India closes top smelter

Tue Apr 23, 2013 7:50am EDT

Related Topics

* Spot TC/RC at $75 and 7.5 cents, up a quarter from March

* China smelters aim for TC/RCs as high as $85 and 8.5 cents

* Rising fees could boost refined copper production

* Higher fees encourage Asia smelters to buy more spot shipments

By Polly Yam

HONG KONG, April 23 (Reuters) - Smelters across Asia are charging the highest fees in five months to process copper concentrate, cashing in on regional oversupply after India closed its top smelter over environmental concerns.

Rising fees are likely to encourage some smelters in Asia to boost refined metal production, potentially swelling London Metal Exchange stocks which are already perched near decade highs.

But they should only have a limited impact on China's total output as many smelters there are already running close to capacity.

The hike in fees foreshadows a copper market surplus expected in the second half, swinging away from several years of deficit as top global mines such as Chile's Escondida boost output.

Treatment and refining charges (TC/RCs) for spot raw material copper concentrates have climbed to $75 per tonne and 7.5 cents per pound in Asia for clean, standard concentrate, above the benchmark $70 and 7 cents in Asia for 2013 shipments, and up a quarter from March, industry sources said.

Shigeru Oi, senior executive officer at Pan Pacific Copper , Japan's top copper smelter, said rising fees are unusual in the spot market at this time of year.

Chinese buyers usually step up spot purchases in the first and second quarters, tightening the supply/demand balance and putting downward pressure on spot TC/RCs, but this year is different partly due to the supply glut, he added.

"The toxic issue at Tuticorin in India and a halt at the Nchanga smelter in Zambia have added to concerns over the supply surplus," he said.

India ordered Sterlite Industries to shut its smelter in Tuticorin over allegations of a gas leak. A fast-track environmental court will again consider a request to reopen the plant on April 29.

Zambia's Konkola Copper Mines, owned by London-listed Vedanta Resources, said on Tuesday its Nchanga smelter would remain shut for a month after a small leak in the wall of a furnace.

Concentrate sellers pay TC/RC to smelters to convert concentrate into refined metal, with the charges deducted from the sale price, based on LME copper prices . The charges, seen as a barometer for profit margins at smelters, usually rise when supply increases.

PROTRACTED SHUTDOWN?

Rising fees also reflect jitters on the part of the Tuticorin smelter's suppliers, who, worried the shutdown could stretch on for months, have opted to resell their material before more supply hits the market, traders and China smelter sources said.

Chinese smelters have so far bought most of the surplus concentrate, snapping up at least four shipments of 10,000-25,000 tonnes each so far this month, according to sources.

Several sources said they expect TC/RCs to rise further.

"China is now are asking $80-$85 and 8-8.5 cents," said a trader at a global trading house, whose firm had sold shipments to China at $75 and 7.5 cents.

He declined to be identified because of the sensitivity of the matter.

"Our next target deal is $80 and 8 cents as two Chinese smelters already got $75 and 7.5," a trader at a medium-sized Chinese smelter said, adding that overseas sellers had been offering to China aggressively after the Indian smelter closed.

Still, other sources questioned the sustainability of higher processing fees in China.

"One of the Chinese smelters says they figure clean grades are around $75/7.5, but we figure that is a little bit aspirational," said another trader at a global trading house.

"Certainly we've seen high 60s being done. You tend to see things moving to a more aspirational level before they settle down to reality in China," he said.

The trader added that processing fees had climbed sooner than expected because of a weaker demand environment and because the Sterlite shutdown had increased the supply of available ore.

"The question is whether or not it will be sustained. I don't think you'll see a lot of fall off between (prices) now and where they'll end up in the second half of the year," he said.

Processing fees elsewhere in Asia have also begun to climb.

LS-Nikko Copper was mulling buying spot concentrate to take advantage of high TC/RCs, said a source at the top smelter in South Korea.

The source declined to be identified because of the sensitivity of the matter and did not provide the tonnage the firm was looking to buy.

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