Copper Supply Could Improve as Treatment Charges Drop at Smelters

Chilean mining giant Antofagasta recently signed its first major concentrates supply deal for next year with the China-based Jichuan Group. Although it is still unclear if the terms of the new deal will form a yearly benchmark for other deals amid a changing copper-concentrates landscape, it will most likely be impacted by an unforeseen but welcome fall in headline treatment and refining charges (TC/RCs)

Treatment and refining charges refer to the costs involved in converting mineral concentrates into refined metal at a smelter. This conversion from raw concentrate to refined and usable metal is a key step in the mining supply chain and represents a large portion of total mining and refining costs.

Next year was already projected to be a good year for the copper sector, thanks to a raw material surplus, and equal or even better TC/RCs compared to the 2023 benchmark of 8.8 cents per pound and $88 per metric ton. This new agreement reportedly has Jinchuan and Antofagasta negotiating a deal of $.08 cents and $80 per metric ton, indicating that both parties see the concentrates market becoming tighter than they previously anticipated.

Even so, some members of the Copper Smelters Purchase Team, a group of China’s largest players in the copper segment, have rejected the Jinchuan-Antofagasta terms as a benchmark and are waiting for higher treatment and refining charges from American mining firm Freeport-McMoRan. Freeport is poised to produce fewer concentrates at the Grasberg mine in Indonesia in 2024 but is also planning to ramp up production at the new copper smelter in Manyar in May, which could reduce its losses from the Grasberg mine. The new Manyar copper smelter is the biggest single-line smelter on the globe and can produce 600,000 tons of refined cathode annually once it reaches full production capacity.

While copper already plays a critical role in various important industries, it will also be key to the global green-energy transition because its high conductivity gives it various applications in hydro, solar, wind and thermal energy. It is also used as a raw ingredient in the development of electric vehicle batteries, electric motors, EV components such as wiring and inverters, and in EV charging stations.

Demand for the metal will undoubtedly increase over the next decade as countries increasingly phase out fossil fuels and internal combustion engine cars (ICE) in favor of renewable sources of energy and zero-emission battery electric cars. This increase in demand creates a bullish outlook for copper industry players such as Southern Copper Corporation (NYSE: SCCO).

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