London 08/01/2016 - Copper miner Freeport-McMoRan will meet Chinese smelter Jiangxi Copper next week but the momentum behind its campaign for lower copper treatment and refining charges (TC/RCs) than already agreed for 2016 supply is ebbing amid growing support for numbers signed last month by Antofagasta from other miners including Codelco.
On December 15, Antofagasta and Jiangxi surprised the market by locking in TC/RCs, the discounts on the copper price paid to smelters for the cost of processing concentrate into metal, at $97.35 per tonne/9.735 cents per pound - nine percent below 2015's benchmark of $107/10.7.
And while many miners and smelters are still awaiting the result of talks taking place next week, there is growing support for the number on both sides of the market, with Chilean state-owned producer Codelco already following suit and other South American producers also rumoured to be supportive.
Codelco has already signed contracts for 2016 supply at the level agreed by Antofagasta and sees the agreement at $97.35/9.35 cents as "the right number" for this year, a well-informed source told FastMarkets.
"We have agreed with both Antofagasta and Codelco, the level is actually a bit lower than what smelters wanted for 2016 but the copper price has gone down, so there's some compromise. I think it's a reasonable number," a source at a large Chinese copper smelter also said.
As London Metal Exchange three-month copper prices look set to remain close to six-year lows of $4,500 per tonne throughout 2016, negotiations over annual TC/RCs, which also serve as an indication of supply-and-demand trends for copper, have been especially heated.
Freeport, which pledged mine cuts of 158,758 tonnes in 2016, has maintained that an annual benchmark TC/RC closer to $90/9 cents is more reflective of the market and that the Antofagasta level is too high and does not constitute a benchmark.
"Freeport, because of its economic situation, has to show that its holding tough in negotiations," a mining source said.
Annual discussions between miners and smelters are usually headed by one representative from each side; typically, Freeport and Jiangxi take the leading roles. But with Freeport's mine output scheduled to drop once its second smelter is built in Indonesia around 2017, absorbing all of Grasberg's concentrate production, some had called for another miner such as Antofagasta to step up.
Still, many in the market are waiting to see what Freeport can achieve. Almost all participants doubt the US miner will be able to get a lower number than Antofagasta's.
"We are waiting to see more terms come out and then, when the market becomes clearer, we can settle annual contracts with our customers," a mining source said.
But with Codelco also backing the level, some smelters are pushing their traditional concentrate suppliers to deal at the Antofagasta level.
"Our counterparts are also asking us to consider this the benchmark but we have not agreed to that ourselves," a second mining source said.
Others noted that Freeport might be at a disadvantage, with lingering uncertainty surrounding its export permit from the Grasberg mine in Indonesia as well as the Antofagasta concentrate being of a preferable quality, having higher copper content and lower gold content mainly.
"I would be amazed if Freeport gets a better number next week. If they got a premium for a difficult quality like Grasberg, even if sweetened with Cerro Verde units, that would be a precedent," a trader said.
"My personal opinion is that this will be the benchmark, I think that Freeport will follow the same level," a third miner added.
Spot TC/RCs have fallen to a four-month low of $89-99/8.9-9.9 cents, according to FastMarkets' latest assessment on Friday - the market is becoming more accustomed to a lower benchmark and smelters are starting to pick up spot tonnage for first quarter delivery.
(Additional reporting by Perrine Faye, editing by Tom Jennemann)