Bleak instances for copper smelters as conversion charges hunch: Andy Dwelling

By Andy Dwelling

LONDON (Reuters) -An unprecedented collapse in conversion charges spells exhausting instances for the worldwide copper smelting sector. 

The benchmark smelter remedy prices for subsequent yr have been set by Chilean copper miner Antofagasta (LON:ANTO) and China’s Jiangxi Copper.

Smelters corresponding to Jiangxi will obtain simply $21.50 per metric ton and a pair of.125 cents per pound for smelting and refining concentrates from Antofagasta’s mines to make refined copper.

That may be a enormous drop from this yr’s benchmark of $80.00 per ton and eight.0 cents and the bottom consequence in at the least 20 years. 

At different instances the plunge might have been learn as a bullish signal of mine shortfall. However by copper’s requirements, mine provide has had a comparatively untroubled yr. World manufacturing is on observe to develop by 2.0% in 2024.

Fairly, the strain is from the opposite facet of the supply-demand equation. 

World smelter capability has expanded too quick, notably in China. Too many smelters are chasing a finite quantity of feed and the competitors might intensify in 2025.

EXUBERANT EXPANSION

China’s copper smelting capability will develop from 14.26 million tons in 2024 to 16 million in 2025 and near 17 million in 2027, Ge Honglin, chairman of the China Nonferrous Metals Trade Affiliation, advised a convention in late October.  

Fierce competitors for uncooked supplies to feed all this new capability has stored spot smelter remedy prices at rock-bottom ranges this yr.

The nation’s main producers met in March and agreed to curb output to forestall processing charges from falling additional. 

Any cuts they made had been solely sufficient to brake the manufacturing momentum. Nationwide output nonetheless grew by 5.0% year-on-year in January-November, in line with native information supplier Shanghai Metallic Market. 

That is why the shortfall in mined concentrates has not been mirrored within the refined steel phase of the copper supply-chain. 

Certainly, the Worldwide Copper Research Group (ICSG) estimates the worldwide refined copper market registered a 402,000-ton provide surplus within the first 9 months of the yr. 

MARGIN SQUEEZE

Smelters don’t solely depend on remedy prices for his or her income. 

They will earn cash from by-products corresponding to gold, silver and sulphuric acid. They will tweak payability and cost time period clauses to reinforce revenues.  

They will additionally decide to separate their pricing between the annual benchmark within the first half of 2025 and the mid-year benchmark within the second half, though that solely works if remedy prices have recovered by then. 

However smelter ingenuity can solely mitigate a lot of the continued squeeze on margins.  

China’s smelter issues are about to be compounded by growth in the remainder of the world. 

Smelters are coming on-line in Indonesia and the Democratic Republic of Congo subsequent yr, decreasing these nations’ exports of mined concentrates. 

The beginning-up of the Adani smelter in India means one other new purchaser within the worldwide concentrates market.  

The ICSG forecasts mine provide development to speed up to three.5% subsequent yr however even that will not be sufficient to fulfill smelter demand. 

SCRAP THREAT

Many Chinese language smelters can alter their enter combine away from mined concentrates to scrap copper. 

Whereas China’s imports of copper concentrates grew by simply 3.2% within the first 10 months of 2024, these of recyclable scrap leapt by 16%. 

Nonetheless, the incoming Donald Trump administration poses a risk to the move of U.S. scrap to China. Shipments floor to a close to halt in 2019 and 2020 after China retaliated towards U.S. tariffs by imposing a 25% obligation on U.S. recyclable copper. 

Trump has once more dialled up the tariff rhetoric and Chinese language scrap importers are already dialling down their purchases of U.S. scrap, fearing a rerun of the tariff wars. 

America is the second largest provider of scrap copper to China after Malaysia. Chinese language imports of U.S. materials totalled 363,000 tons within the first 10 months of 2024, representing virtually a fifth of the nation’s complete name on the worldwide market. 

A simultaneous squeeze on mined concentrates and scrap availability goes to pose a troublesome problem for China’s smelters within the months forward. 

They could not all survive.      

The opinions expressed listed below are these of the writer, a columnist for Reuters.