London 18/05/2016 - Recent shifts in the market for mined copper have led to a deficit of high-arsenic 'complex' material and a trend towards higher treatment and refining charges (TC/RCs) for concentrates, sources told FastMarkets.
Chinese non-ferrous smelter Chinalco's pursuit of a licence to blend high-arsenic tonnages from its Toromocho mine in Peru is keeping complex material out of the market, as is Chilean state-miner Codelco's decision to start roasting concentrates at Division Ministro Hales.
And both mines, the sources of the bulk of the market's complex concentrates last year, are also producing concentrates with progressively lower arsenic levels, sources said.
Trades involving the blending of high-arsenic copper concentrates became the dominant narrative of the miner-to-smelter market over the past two or three years. Concentrates must have arsenic levels below 0.5 percent to be imported into China, the biggest consumer of copper.
Accordingly, traders picked up complex material at very high TC/RCs before blending these with 'clean' low-arsenic units and selling to smelters at lower rates.
But with ore grades improving at both mines, it has become clear in the past month that the market will be without most of these tonnages this year and probably for the foreseeable future.
Chinalco, also a player in copper and the owner of the Toromocho mine, has already constructed a blending facility in China. The fact it is awaiting approval for an import permit from the government is an open secret.
"This changes the game... Chinalco has changed its strategy so it has prepared a high number of clean concentrates to get ready for blending and it will keep the complex material from Toromocho," a trader in China said.
In Chile, state miner and smelter Codelco has been steadily decreasing the amount of complex concentrate produced at Ministro Hales, which started up in 2015 and immediately brought high-arsenic material into the market due to teething problems with its roasting facility there.
But now that roasting, which stabilises mercury and arsenic levels, is back on track, Ministro Hales concentrate is now less 'dirty' and can be imported into China or at least requires less clean material to blend.
"It's cleaner compared to last year... the roaster is running well so they're not feeding the market," a producer source said.
TC/RCs RISING
Reduced availability of complex concentrates means that trading houses are long on clean material. Depending on the arsenic ratios, blending requires substantially more clean material to stabilise arsenic levels.
"Some trading companies bought clean concentrate in advance with the view to blend but the dirty material hasn't come in, so they are long of clean, which they paid expensive numbers for," a source at a mining company said.
TC/RCs - discounts on the market price of copper paid to smelters for the costs of processing concentrates to metal - have firmed to $87-97 per tonne/8.7-9.7 cents per pound, their highest since the very start of the year and an indication of higher supply in what has turned into a buyers' market.
"After Cesco Week traders realised Chalco were starting a blending operation in China so they started to sell their parcels," a trader in China said.
Smelters are also buying spot copper concentrates at around this year's annual benchmark of $97.35/9.735 cents for the first time this year. Trades went as low as $84/8.4 cents early in March.
Traders are less likely to place aggressive bids in tenders. While 'super clean' low-arsenic concentrate was bought in the $60s/6 cents earlier in the year, traders are now purchasing decent quality concentrates as high as $90/9 cents.
"A lot of traders who were blending are a little long of the clean material so their interest has also diminished and they're bidding less aggressively for the clean and that has pushed terms up," a third producer source said.
A lack of blending has seen trading houses offload excess tonnages to smelters at higher rates. This trend could continue depending on the quantity of stocks in hand, which in turn may affect annual contract negotiations later this year and which are already shaping up to be highly contested.
"Anyone who sold early in the year has done well. It's very difficult to gauge the second half of the year; it looks like there will be an onslaught of material," a second trader said. "Worryingly, going into next year, it's going to be huge - there are a lot of extra tonnes."
(Editing by Mark Shaw)