May 31, 2019 / 7:24 AM / a year ago

Spot of bother: Copper smelters hit by lowest treatment charges in 6 yrs

* Treatment charges for copper concentrate fall as low as $60/T

* Fees are paid to process copper ore into refined metal

* Comes as China ramps up smelting capacity

* Average TC breakeven for smelters is around $70/T -analyst

By Tom Daly

BEIJING, May 31 (Reuters) - Spot prices for refining copper concentrate have fallen to their lowest in 6-1/2 years and look set to stay under pressure, dragged down as China cements itself as a dominant producer of processed metal.

Chinese copper smelters are expected to add almost 1 million tonnes of capacity in 2019, stealing a march on rivals in Japan, South Korea and Chile, and pushing down the spot treatment charges (TCs) the industry receives for processing concentrate.

TCs slipped as far as $60 a tonne on Thursday, according to research and price reporting agency Asian Metal, the lowest since November 2012 and down around 30% from a two-year peak of $96 hit in December. AM-CN-CUCONC

That level is also more than 20% below the TC benchmark for 2019 at $80.80, which is referenced in long-term miner-smelter contracts worldwide after being agreed by China’s Jiangxi Copper and Chilean miner Antofagasta.

Those who used that rate in their long-term contracts will be protected from the TC slump, but BMO Capital Markets analyst Colin Hamilton said smaller smelters would likely be far more exposed to spot prices.

“Given they tend not to hedge finished copper, this can have a big impact on margins,” he said, adding that the current average TC breakeven point stood at around $70 a tonne.

“Hence ... we are now seeing ‘strategic maintenance’ from smelters,” Hamilton said.

Disruption to mine supply has also pressured TCs, with output set to drop in key producer Zambia and MMG Ltd’s Las Bambas project in Peru hit by a two-month blockade by indigenous communities earlier in the year.

In its forecasts for 2019’s copper market, BMO had factored in that around 3 percent of annual global supply could be lost to disruptions, but Hamilton said half of that amount had already gone in the first four months of 2019.

Meanwhile, China’s copper concentrate imports were up 16.7% year-on-year at 6.21 million tonnes in January-April, according to customs data, reflecting increased purchases by smelters there.

“In previous years, the TC was relatively high, so they (the smelters) expanded very fast,” said CRU analyst He Tianyu.

Some Chinese smelters, including Xiangguang Copper and Dongying Fanyuan, have just come out of maintenance, further boosting demand for concentrate.

Argonaut Securities analyst Helen Lau said in a note that China’s rising smelting capacity “and more cuts in imports of copper scrap will further weigh” on TCs, as consumers seek more copper in other forms.

Also suggesting TCs have further to fall, a recent tender for Antofagasta’s Los Pelambres mine saw 50,000 tonnes sold to a trader at a TC in the high $40s for delivery this year and the low $40s for 2020, according to a source with knowledge of the matter. Antofagasta did not reply to a request for comment.

Reporting by Tom Daly in BEIJING; Additional reporting by Mai Nguyen in SINGAPORE and Melanie Burton in MELBOURNE; Editing by Joseph Radford

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