4 Min Read
* Large smelters are betting Indonesia to resume concentrate exports in H2
* Spot TC/RCs weaken versus last month
* If TC/RCs don't rise, start up of new China smelter capacity may see delay
By Polly Yam
HONG KONG, May 23 (Reuters) - Large Chinese copper smelters are deferring major spot-market purchases of concentrates, betting on a rebound in processing fees that would make buying of the raw material in the second half more profitable, traders and sources at smelters said.
Sellers of concentrate pay treatment and refining charges (TC/RCs) to the smelters to convert the raw material into refined metal, with the charges deducted from the smelters' sale price. The charges paid rise or fall in line with concentrate supply or demand.
That is what happened last month, when the charges rose to $110 per tonne and 11 cents a pound after China's No.3 copper producer Jinchuan Group declared force majeure, leading to a brief surge in concentrate supplies.
TC/RCs have since declined, with the charges for spot standard concentrate to China traded at around $100 per tonne and 10 cents per pound this week. China is the world's top producer and consumer of refined copper.
But Chinese smelters are expecting Indonesia to resume concentrate exports in the third quarter of this year after halting shipments in January, the sources said. They also expect supplies from new mines to rise.
Anticipating those developments to boost TC/RC charges, smelters are going slow on their concentrate purchases now.
Large smelters were not keen to take spot imports for May-July deliveries, said an Asia-based trader at a global trading firm, which sells concentrates to China. "The Chinese want to wait and see."
While larger smelters are not keen to buy now, smaller smelters face delays in term imports of concentrate due to tighter credit checks by local banks in China, the sources said.
How much Indonesia exports will be key in setting spot TC/RC charges, said a trade manager at a medium-sized smelter in northern China. TC/RCs may move up to as much as $150 and 15 cents should Indonesian concentrate shipments be large in the second half, said the manager, who declined to be named because he was not authorised to talk to media.
Freeport-McMoRan Copper & Gold Inc and Newmont Mining Corp account for 97 percent of Indonesia's mined copper output and halted exports of concentrate in January due to Indonesia's ban. Newmont may cut output from June if talks with the government remain unresolved over export permits and taxes.
A trading manager at a large Chinese smelter in the east said the firm expects Indonesia to resume exports around July, which could push up spot TC/RCs to China to more than $110 and 11 cents.
Globally, new mines were also likely to step up production in the second half of the year, he added.
In a boost to supply, the Caserones mine in Chile is starting production in May and plans to produce 68,000 to 69,000 tonnes of copper concentrate in 2014.
And the new Oyu Tolgoi copper-gold mine in Mongolia is ramping production after producing 25,300 tonnes of copper-in-concentrate in the first quarter, with 2014 output being targeted between 135,000 and 160,000 tonnes of metal.
If TC/RCs don't increase in the second half, it could, coupled with weak refined copper prices, delay the start up of the 300,000 tonnes of new capacity due to come onstream in China in the coming months, said Yang Changhua, senior analyst at state-backed research firm Antaike.
Copper prices are down about 6 percent this year. (Editing by Muralikumar Anantharaman)