London 02/09/2016 - Copper treatment and refining charges (TC/RCs) have held at firm levels in the past two weeks, which reflects ample availability of concentrate, even though Chinese smelters have continued to stock up ahead of a typically slow buying season in the fourth quarter.
Smelters tend to stock up in the third quarter and stay on the sidelines of the market during the last quarter of the year when annual benchmark negotiations take place - this generally causes TC/RCs to rise from mid-September until an agreement is reached.
This year, this trend could be accentuated by the fundamentals. The supply of clean concentrates has dramatically improved and, so far this year, mining disruptions have been minimal.
Two strikes, however, have been announced for next week at Anglo American's Los Bronces and Codelco's El Salvador mines after workers there rejected new contract proposals amid low copper prices.
"There is ample supply of concentrates in the market and even with potential supply disruptions in Chile there will be enough," a smelter source said. "There is also a lot more clean concentrates and less complex material around so one needs to buy less to produce the same volume."
Overall spot TC/RCs, the discounts on copper prices paid to smelters for the costs of processing concentrate to metal, were up very slightly at $99-104 per tonne/9.9-10.4 cents per pound on a global basis for clean, standard material. This compares with levels of $98-103/9.8-10.3 cents two weeks ago and still exceeds annual terms agreed for 2016 at $97.35/9.735 cents.
Smelters in China remain in the market for tonnages for the fourth quarter but they do not have to negotiate hard and can buy at high discounts given excess supply and multiple spot offers. In spot sales, TC/RCs were reported in the range of $102-106/10.2-10.6 cents, up $1 from mid-August.
There were also more tenders reported while mines try to place spot units before annual talks start later this month. Traders have bought parcels at TC/RCs of $96-99/9.6-9.9 cents compared with $95-99/9.5-9.9 cents two weeks ago.
"It's a bit of an awkward market in the second half but it looks like things are starting to pick up again," a trader said.
From here, market participants expect spot TC/RCs to stay at current high levels or even increase slightly. China Smelters Purchase Team (CSPT) members will probably push for a small increase in the price limit for fourth-quarter purchases when they meet late in September - the limit for this quarter was set at $103/10.3 cents.
UPPER HAND FOR SMELTERS IN ANNUAL TALKS
Negotiations for next year's annual benchmark TC/RCs will kick off in the week of September 20 when Freeport-McMoRan is scheduled to meet with its key Chinese customers in Hong Kong, FastMarkets understands.
Smelters appear to be in a strong position to push for higher terms based on a well-supplied market and have a three-digit figure as a hard target, sources said.
"There's a very clear consensus [among Chinese smelters]: three digits, at least," one CSPT member said.
Miners, by contrast, are under pressure due to low copper prices and will try to keep the increase to a minimum and still in the two-digit region, FastMarkets understands.
"It's on the smelters' side definitely - it's a buyers' market," a mining source admitted.
The benchmark tends to be agreed between LME Week - which takes place this year early in November - and Asia Copper Week late in November. Freeport is expected to retake the lead in this year's negotiations - its agreement with Jiangxi Copper typically serves as a reference - after last year's curveball by Antofagasta.
(Additional reporting by Archie Hunter and Meimei Qin, edited by Mark Shaw)