London 22/01/2016 - China's biggest smelter, Jiangxi Copper, has reached an agreement with US miner Freeport-McMoRan on an annual treatment and refining charge (TC/RC) of $97.35 per tonne/9.735 cents per pound for 2016, the same level as previously agreed with Antofagasta, according to well-informed sources in China.
Although the TC/RC level has been agreed, other contractual terms are still being negotiated with a final agreement expected by Monday, a source close to the negotiations told FastMarkets.
The settlement is down from a benchmark of $107 per tonne/10.7 cents per pound in 2015, and equal to the that reached with Chilean miner Antofagasta on December 15. Although some miners such as Codelco had already started booking contracts based on the Antofagasta number, others were waiting for Freeport's settlement.
"I think it's a good number for the market to follow, many smelters who have business with Antofagasta including us have gladly signed the long-term contracts in December," a member of the Chinese Smelting Purchase Team (CSPT) said.
Jiangxi and Freeport were still in disagreement when they met last week in Hong Kong with the US miner trying to secure a number closer to $90-95 per tonne while Chinese smelters had been very reluctant to drop the figure too far below the $100 mark.
"The disagreement during the Hong Kong meeting was that smelters argued that the copper grade was better at Antofagasta mines while Freeport argued that Antofagasta had smaller annual output and could therefore not fully represent the miners' side," a trading source in Shanghai explained.
Some market participants said Jiangxi Copper was very likely to cut its annual purchasing volume from Freeport by around 20 percent this year compared with 2015.
Spot TC/RCs, which miners pay to smelters to turn copper concentrate into refined copper, have fallen to a four-month low of $89-99 per tonne/8.9-9.9 cents per pound for clean, standard grade concentrate, according to FastMarkets' latest assessment on January 8.
As London Metal Exchange three-month copper prices - currently at $4,450 per tonne - look set to remain close to six-year lows 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 and suffered a sharp drop in its mining share, had been keen on securing a lower TC/RC benchmark than Antofagasta, but market participants had thought this would be difficult to achieve given the quality difference between Freeport's concentrate from Grasberg and Antofagasta's Pelambres material, which is higher in copper content and lower in gold.
"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 commented last week.
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.
(Editing by Perrine Faye)