Viewpoint: Cu concentrate market set for tight 2021

The copper concentrate market is likely to remain tight in 2021, with demand growth poised to significantly outpace production hikes and launches.

Global supply is poised to increase by 0.9mn-1mn t next year, market participants estimate, largely because of various mine expansions at Freeport McMoRan's Grasberg project in Indonesia, First Quantum's Cobre Panama mine in Panama and MMG's Las Bambas in Peru. Start-ups are also in the pipeline for next year, including Zijin Mining's Komoa-Kakula in the Democratic Republic of the Congo, West Mining's Yulong phase 2 in China and Lundin Mining's Candelaria project in Chile.

But demand growth is likely to outpace the start-ups, particularly as China's smelting capacity continues to ramp up without the constraints of the Covid-19 pandemic seen in the first half of 2020.

Overall, 1.1mn-1.2mn t/yr of new Chinese smelting capacity came on stream in 2018-19, representing a 12pc increase from 9.67mn t/yr of existing smelting capacity in 2017. But production of copper cathode and imports of copper concentrate so far this year indicate China's smelters have been operating at only moderate utilisation rates.

China imported 18.05mn t of copper concentrate in January-October last year, up by just 0.81pc from 17.8mn t a year earlier, customs data show. Over the same period, production of copper cathode rose by just 6.1pc to 8.36mn t, according to China's State Statistics Bureau — only a modest growth rate, largely because of this year's low treatment and refining charges (TC/RCs) for copper concentrate. Copper cathode production hikes were also limited as a result of high inventories and depressed prices for sulphuric acid — a by-product of copper smelting — in the second and third quarters of last year.

Spot copper concentrate TC/RCs recently were pegged in the mid- to high $40s/t and 4¢/Ib, respectively — down by about 13.6pc from early this year and far below average production costs that require TCs of $60-65/t from most copper smelters globally.

"The low [copper concentrate] TCs and sulphuric acid price [in China] squeezed smelters' profits to nil in quite a long period of this year, and smelters had to reduce feedstock or cut operation rates to avoid more losses," a smelting source said.

Tough 2021 benchmark talks signal supply concerns

The annual benchmark for copper concentrate TC/RCs on 14 December was finally set for 2021 at $59.50/t and 5.95¢/Ib, respectively — down by 4pc from the $62/t and 6.20¢/lb for 2020.

This indicates suppliers and consumers agreed that supply will be tighter next year, although the extent of this tightness has been grounds for heated debate.

The benchmark is usually settled between leading Chinese smelters and overseas mining companies — such as Jiangxi Copper and Tongling Nonferrous versus US-based Freeport McMoRan and Chile's Antofagasta — in mid-November. But this year, the talks dragged on for about a month, with diverging opinions about exactly how the supply-demand balance will evolve, leading to a full deadlock for more than a week of the negotiations. "Initial offers and bids were at $55/t and $65/t, respectively, so a $10/t gap," a source said.

Mining companies argue that the copper concentrate market will be tighter next year, pointing to higher demand as China's smelting capacity expands and potential supply disruptions from South America and Australia caused by workforce reductions to combat the Covid-19 virus, plus Australia-China trade tensions.

From January-October last year, mined copper output in South America's Chile and Peru — the world's top two copper concentrate producers — fell by 0.02pc and 14.8pc year on year, respectively, to 4.74mn t and 1.72mn t.

But smelters have pushed back, arguing that the anticipated slowdown of Covid-19 next year, scheduled production hikes at several projects and the redirection of Australian supply will result in global copper concentrate supply being less tight than some suggest.