SHANGHAI – Miner Freeport-McMoRan and two large Chinese copper smelters on Thursday agreed a 23% cut in annual treatment and refining charges (TC/RCs) for 2020, pushing the industry benchmark to a nine-year low.
Freeport settled with Jiangxi Copper and Tongling Nonferrous Metals in two separate deals at the same price, Javier Targhetta, president of Atlantic Copper and senior vice president for marketing and sales at Freeport told Reuters.
The agreements were made on the sidelines of the Asia Copper Week gathering in Shanghai, where the first large miner-smelter settlement traditionally becomes the annual benchmark for the coming year.
The charges, paid by miners to smelters to process ore into refined metal, were set at $62/t and 6.2c/lb down from $80.80/t and 8.08c/lb in 2019, reflecting tight concentrate supply and China's rising processing capacity.
The settlements saw the TC/RCs benchmark falling for a fifth straight year to its lowest since 2011. There charges were set as high as $107/t and 10.7c/lb in 2015.
A senior executive at Tongling confirmed the settlement with Freeport. Jiangxi did not immediately respond to a request for comment.
TC/RCs have been under pressure due to tight concentrate supply and rising smelting and refining capacity in China. Charges fall when the supply of ore tightens, as smelters compete to get supplies.
A source at Chile's Codelco, the world's biggest copper producer, said Codelco would follow the Freeport-Jiangxi agreement.
"I think all will follow. It is very reasonable," said the source, who declined to be named as he was not authourised to talk to media.
The TC/RCs benchmark is referenced in major long-term deals globally and plays a big role in determining profitability at both ends of the copper supply chain. Smelters prefer high TC/RCs, while miners want low charges.
Spot TC/RCs, used in smaller and short-term deals, fell sharply this year to seven-year lows of $52/t in August and September after China rapidly expanded its capacity. They are currently assessed at $59.50/t.
"In my opinion it's a fair settlement that represents well the market situation we forecast for 2020," Freeport's Targhetta said.
All other terms of the deals for 2020 with Tongling and Jiangxi would be rolled over from the previous year, he added.
Chinese smelters are set to add 900 000 t of annual smelting capacity this year, according to research house Antaike. It expected the pace of expansion to slow in 2020, with another 350 000 t likely to come on line.