In a notable shift within the copper industry, leading commodity traders Glencore and Trafigura are reportedly urging Asian smelters to reconsider traditional pricing benchmarks, as they push for lower spot prices for copper processing in 2024.
Three confidential sources familiar with the matter revealed that the two trading giants are advocating for Treatment Charges (TCs) based on the spot market, a departure from the historical use of annual benchmarks.
Traditionally, the industry has relied on annual benchmarks to set TCs for contracts related to the processing of concentrate into copper. However, Glencore and Trafigura aim to align TCs with spot market dynamics, where increased Chinese and global smelting capacity, coupled with constrained concentrate supplies, have led to a decline in processing charges.
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To implement this strategy, Glencore and Trafigura are reportedly proposing TCs linked to a basket of assessments from price reporting agencies, including Fastmarkets and SMM, for the 2024 supply. Sources, who requested anonymity due to lack of authorization to speak publicly, indicated that the two trading houses are also seeking to establish caps on TCs to safeguard margins against potential increases in mined copper supplies that could escalate TCs.
According to a source from a major smelter, acceptance of these terms by smelters might become inevitable unless there is a significant improvement in supply post the Lunar New Year in February.
Trafigura and Glencore are reportedly aiming to set caps on TCs in the mid-$60s per ton range. However, a second smelter source mentioned that the caps could vary based on volumes and relationships, clarifying that there is no specified floor, only proposed caps.
The upcoming Lunar New Year holiday in China, beginning on February 10, is expected to slow down activity in the world’s top producer and consumer of copper. The shortage of materials due to supply chain disruptions, coupled with China’s increased smelter capacity, has led to a significant drop in concentrate processing charges on the spot market, currently hovering around $40 per metric ton—50% below the benchmark of $80 per ton.
The $80 per ton benchmark, agreed upon by Chilean miner Antofagasta and China’s Jinchuan Group in November, preceded the closure of a mine in Panama and a substantial reduction in Anglo American’s guidance in December.
China, home to half of the world’s copper smelters, emerged as the largest buyer of raw copper materials in 2023, with imports of copper ore and concentrate reaching a record high of 27.54 million tons—a 9.1% increase from 2022, as indicated by customs data.
Glencore, a major player in the copper market, supplied over one million tons of copper metal and concentrates in 2022, with a similar guidance for 2023. Trafigura, though not disclosing the size of its copper portfolio, remains a key supplier of copper concentrate to smelters worldwide.
Information for this briefing was found via Mining.com and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
