The COVID-19 pandemic has made it hard for companies to negotiate deals, as evidenced by the Freeport-McMoRan copper benchmark deal. Instead of personally receiving key customers during the London Metal Exchange Week, miners have resorted to using virtual meetings, whose progress is slower than traditional face-to-face meetings, to hammer out deals.
Apart from impacting gatherings, the pandemic is also affecting mine supply and stirring up market uncertainty. Javier Targhetta, Freeport’s senior VP of sales and marketing, expects that the deficit of copper concentrate in the market will continue. He adds that prior to the pandemic, inflexible supply of concentrates had allowed the company to strike deals that offered the lowest processing fees in almost a decade.
The onset of the pandemic significantly affected copper supply from mines in South America, while imports into China reached peak levels as the economy of the country ricocheted. Targhetta adds that while negotiations of next year are still in the early stages, they projected a deficit for concentrates. This means that the company doesn’t expect any major changes in the refining and treatment charges it gives smelters to turn the ores mined into metal.
Freeport is listed as the world’s largest copper miner, so the deals the company signs with its Asian consumers set the standard for the rest of the industry. Additionally, Freeport negotiations are closely followed by investors as a gauge for demand and supply for the coming year.
In an emailed note, analysts of JPMorgan Chase & Co stated that, after virtual meetings which were held over a week, the JPMorgan team’s bullish view on copper that was first established in April and renewed in August has not changed. It is predicted that prices may reach $7500 a ton in next year’s second quarter.
Targhetta adds that higher prices should provide miners with an incentive to maximize their 2021 output, which may help to reduce some of the strain on supply. He expects changes in the processing fees for 2021 to be minimal. However, smelters are asking for a significant increase to help sustain their margins.
Aurubis is the largest copper producer in Europe. Its executive board chairman, Roland Harring, states that the refining and treatment charges are unreasonably low. He looks forward to when the industry will be able to iron out commercial disagreements in person once more.
Energy Fuels Inc. (NYSE American: UUUU) (TSX: EFR) is a mining sector player you should watch. This company focuses on producing uranium and vanadium, both of which have been designated by the U.S. federal government as critical minerals.
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