Great News For Copper… Or Is It?

Chinese imports of copper ores and concentrates jumped 66% year-on-year in July.

The General Administration of Customs reported this month that July imports hit 938,500 tonnes. Continuing a notable jump in Chinese concentrate demand that has presented over the past year (see chart below from Macquarie — not featuring the latest data).

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The rise in demand for copper ore seems to be backstopped by solid Chinese demand for refined copper. Imports of the finished metal rose above 400,000 tonnes in July. The first time import demand has hit this level since Q1 2012.

This obviously sounds like great news for copper producers. Except there’s a twist.

The odd thing is Chinese treatment and refining charges (TC/RCs). These are the fees that copper smelters charge for melting down mine concentrate into finished metal.

Normally when demand for concentrate is strong, TC/RCs fall. Smelters charge less for processing, so they can attract supply to their operations.

You’d think that with copper concentrate imports surging, there must be high demand for these ores. So TC/RCs should be going down. But instead Chinese TC/RCs have been holding steady, around 15 cents per pound.

That’s well above the 5 to 7 cent-per-pound level that prevailed during the first half of 2012. This is not the sort of pricing you’d expect for a market that seems to be ravenous for copper feed.

One explanation is that China isn’t facing much demand competition from the rest of the world. Global mine supply of copper is up about 5% year-on-year. That extra output combined with lower demand outside of China may mean that Chinese smelters are “the only game in town” right now.

In such case it would make sense that China is able to import large concentrate volumes without lowering smelting charges. Miners have little choice but to sell here, regardless of the processing costs.

All of which begs the question: what happens if Chinese demand drops from the elevated level we’ve seen over the past year? There may not be anywhere else to pick up the slack.

Here’s to the treaters and the refiners,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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