Higher inventories of semi-processed copper ore are driving up charges levied by smelters to treat the metal, according to Freeport-McMoRan Copper & Gold Inc. (FCX:US), the world’s second-largest copper miner.
Fees to process so-called concentrate are rising because smelters shut for maintenance, reducing output, and more supply from mines is coming to the market, IntierraRMG said in a report this week. The charges exceed $100 a metric ton and 10 cents a pound, according to the Toronto-based researcher.
Smelters including Freeport’s Atlantic Copper unit, KGHM Polska Miedz SA, Boliden AB and Aurubis AG have closed plants for maintenance this year. They don’t need to buy concentrate because their inventories are at a “good level,” said Javier Targhetta, Phoenix-based Freeport’s senior vice president of marketing and sales. Reducing stockpiles will take “a few months” as smelters restart, he said in an interview.
“The coinciding shutdown of big smelters means there is a big tonnage of concentrate not being smelted,” Targhetta said yesterday in London. “It could have been somewhat accumulation of inventories here and there, and certainly that’s what’s driving very high spot prices that we’ve seen.”
World supply of mined copper will expand no less than 4 percent annually in the 2012-16 period, Standard Bank said this week in a report, compared with less than 1 percent in four of the six years before 2012. Mines from Rio Tinto Group (RIO)’s Oyu Tolgoi in Mongolia to Vale SA’s Salobo in Brazil are adding production. Supply gains may be offset by increased smelting capacity in China, the world’s largest producer of refined copper, Targhetta said.
“I would accept we are getting into a more balanced situation compared to previous years, where there was an excess of concentrate,” he said. “There may be a balance or slight excess of concentrate, but not the biggest excess.”
Targhetta spoke during LME Week, an annual industry gathering under the aegis of the London Metal Exchange during which supply contracts are discussed. Smelters will likely seek processing fees of $100 a ton and 10 cents a pound, according to IntierraRMG. The costs are known in the industry as treating and refining charges, or TC/RCs.
“We have not thrown any proposed price on the table, any level or specifically any TC/RC level,” Targhetta said. “We are just meeting our customers and exchanging views.”
The treating fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper in the ore. The charges are deducted from prices paid by smelters to mining companies for concentrate.
Atlantic Copper’s smelter in Huelva, Spain, will restart at the beginning of next month after shutting for 60 days for maintenance, said Targhetta, who also is the unit’s president.
Copper demand has yet to respond to bullish economic data from Europe, according to Targhetta. While the metal for delivery in three months fell 9.2 percent this year on the LME, heading for a second annual retreat in three, prices gained the most in 18 months in the third quarter.
“I am very positive regarding the strength of copper,” Targhetta said. “The recovery in the U.S. is a fact. There are promising signs in Europe.”
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