Smelters have begun paying miners to convert copper concentrate into refined metal as supply for the red metal dwindles. This is despite the fact that mines have seen production increases, with global output rising by 2.8% in 2024 after recording a 2.1% rise in 2023. Q1 of this year also saw output of copper increase by 1.2%.
While treatment and refining charges normally generate revenues for smelters, competition among smelters has many fighting to get their hands on limited supplies of concentrate.
China has, for instance, recorded significant increases in its imports of copper concentrates, having risen by 7.5% in the first quarter of this year. This has caused treatment and refining charges to drop below zero, which means smelters are losing money just to keep going.
This imbalance isn’t sustainable, especially if smelters agree to negative or low rates in the upcoming mid-year contract talks, which cover much larger volumes than the daily market. It doesn’t help either that the prices set by the copper industry don’t adjust quickly to changing market conditions, which can cause issues when the market suddenly shifts, like it has now.
There is some good news though; the prices smelters earn for processing ore have stopped declining. This is not to mean the prices aren’t low, they are, but smelters can and do make extra money from by-products like sulfuric acid, silver, and gold. For instance, prices for sulfuric acid are increasing in China as demand from fertilizer production grows.
China’s scaling up of its processing capacity has also influenced refined metal production positively, with data from the National Bureau of Statistics showing that its May output surged by nearly 14%. Estimates from the Shanghai Metal Market show that production has risen by 11% thus far into the year, as compared to last year’s levels.
Not many can keep up with China though, with some Western smelters putting their operations on pause.
A good example is Sinomine, which placed its Tsumeb plant in Namibia on care and maintenance. Glencore had done the same earlier in the year with its Pasar operation in the Philippines.
It is expected that stresses in the supply chain for raw materials will worsen as new smelters come up globally and some time will be needed before the current imbalance in demand and supply is corrected via capacity closures. This comes as iron ore and lithium markets continue to move away from annual benchmarks.
The supply-side issues pummeling copper smelters position firms like Torr Metals Inc. (TSX.V: TMET) well to deliver additional long-term value to shareholders as investor interest shifts towards exploration firms focusing on this metal.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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