Chinese TC/RC on upward momentum

Chinese spot copper treatment and refining charges or TC/RCs, are expected to stay firm in the first half of the year amid ample global concentrate supply.
Analysts said potentially higher concentrate supply and larger mining capacities will likely to push TC/RCs to around $145-$150 a metric ton and 14.5-15 cents a pound in the second quarter respectively, a slight increase from the first quarter but sharply higher from year-ago levels.
During late January to early February, Chinese copper smelters bought spot copper concentrate at TC/RCs of $140/ton and 14 cents/lb respectively.
Second quarter 2004 treatment charges, however, were as low as $30-$40/ton, while refining charges were 3 to 4 cents/lb. “TC/RCs have come back to a high level that was seen in the years before multiple slumps in 2004. The TC is likely to stay in a range of $140-$145/ton on sufficient concentrate supply,” said Sun Chaohui, nonferrous metals analyst at Xingye Securities in Shanghai. Yang Changhua, a senior copper analyst at the influential Beijing Antaike Information Development Co., said TC/RCs could hit $150/ton and 15 cents/lb if Chinese smelters try to source concentrate from the spot market in the next few months.
“But that will be the ceiling, because the increasing demand for concentrate on smelters’ aggressive production plans is a negative factor for TC/RCs,” Yang added.
Due to a shortage of domestic ore, Chinese copper smelters are heavily dependent on overseas mines for copper concentrate - a major raw material for cathode production.
Except for Jiangxi Copper Co., Yunnan Copper Co. and two units of Tongling Non-Ferrous Metals Co. that have signed long-term contracts with overseas mines for concentrate purchases, most Chinese smelters purchase copper concentrate on a spot basis. TC/RC negotiations between Chinese smelters and overseas suppliers don’t have a fixed schedule and are often conducted just when the smelters want to buy.
TC/RCs are charges mines pay to the smelters for smelting copper concentrate into cathodes. Smaller copper concentrate supplies usually lead to lower TC/RCs as smelters actively seek out scarce raw material needed to run their mills by offering attractive treatment and refining charges. Conversely, higher concentrate supply leaves miners at the mercy of smelters, which often quote higher charges.

Mining expansion ensures ample concentrate supply
Since mid-2004, TC/RCs have seen a sevenfold increase from around $20/ton and 2 cents/lb, indicating that the worldwide supply tightness in copper concentrate has largely eased, analysts said.
Analysts expect global concentrate supply to increase significantly in 2005 with additional production lines coming on stream amid rising mining capacity worldwide.
According to the latest report by the International Copper Study Group, or ICSG, global copper concentrate production capacity is estimated to reach 13.60 million tons of copper metal contained in ores in 2005, up 7.1% from 12.7 million tons in 2004. Major copper mines operated by global mining giants have been working on plans for expansion since early last year. In Chile, Minera Collahuasi is evaluating the expansion of its mine, while Empres Nacional de Mineria (Enami) plans to develop its Delta copper deposit, possibly with a partner.
In Asia late last year, U.S.-based Freeport-McMoran Copper & Gold Inc.’s (FCX) Grasberg open-pit mine in Papua, Indonesia, returned to full production after being shut following a landslide in October 2003.
Adding more excitement, Grasberg recently completed exploration which improved access to higher-grade ores that contain copper, gold and silver. The development of new copper mines was also reported elsewhere in the world, thanks largely to skyrocketing copper prices amid a strong appetite from Chinese consumers.

Correction likely late in the year
However, this “uptrend is not an endless thing. We will see corrections in spot copper TC/RCs later this year, possibly at the end of this year,” said a senior official who is responsible for importing copper concentrates for a major Chinese smelter. Chinese analysts expect overseas mines to review their copper concentrate sales to the world markets from time to time, to hold TC/RCs in a reasonable range. Antaike’s Yang said mines and smelters need to find a mutually acceptable rate which allows both sides to maximize benefits. Current TC/RCs are a good example, he said. But the current equilibrium could be broken, if smelters continue to raise TC/RCs to a point where miners find it unsustainable.