BHP bets billions on Chile mines to face global copper crunch
BHP detailed to investors this week plans to spend $10.7 billion to $14.7 billion within about 10 years.
Miner Freeport-McMoRan Inc and three Chinese copper smelters on Thursday agreed a 23% cut in annual treatment and refining charges (TC/RCs) for 2020, pushing the industry benchmark to a nine-year low.
Freeport settled with Jiangxi Copper, Tongling Nonferrous Metals and China Copper Corp in three separate deals at the same price, Javier Targhetta, president of Atlantic Copper and senior vice president for marketing and sales at Freeport told Reuters.
The charges, paid by miners to smelters to process ore into refined metal, were set at $62 a tonne and 6.2 cents per pound, down from $80.80 a tonne and 8.08 cents per pound in 2019, reflecting tight concentrate supply and China’s rising processing capacity.
Chinese smelters are set to add 900,000 tonnes of annual smelting capacity this year and could add another 350,000 tonnes in 2020
The agreements, made on the sidelines of the Asia Copper Week gathering in Shanghai, saw the TC/RCs benchmark falling for a fifth straight year to its lowest since 2011. The charges were set as high as $107 per tonne and 10.7 cents per lb in 2015.
A senior executive at Tongling confirmed the settlement with Freeport. Jiangxi and China Copper did not immediately respond to requests for comment.
The TC/RCs benchmark is referenced in major long-term deals globally and plays a big role in determining profitability at both ends of the copper supply chain. Smelters prefer high TC/RCs, while miners want low charges.
A senior official at another major Chinese smelter said the benchmark was “extremely bad news” and that they “cannot swallow” such low prices, adding that the low settlement would lead to a production cut.
A Jiangxi executive said earlier this week that his company needs TC of at least around $75 a tonne to break even.
The charges have been under pressure due to tight concentrate supply and rising smelting and refining capacity in China. They fall when the supply of ore tightens, as smelters compete to get supplies.
Spot TC/RCs, used in smaller and short-term deals, fell sharply this year to seven-year lows of $52 a tonne in August and September after China rapidly expanded its capacity. They are currently assessed at $59.50 a tonne.
“In my opinion it’s a fair settlement that represents well the market situation we forecast for 2020,” Freeport’s Targhetta added, having said on Tuesday that a $60 TC would be a “reasonable” level.
All other terms of the deals for 2020 with Tongling and Jiangxi would be rolled over from the previous year, he added.
Codelco, the world’s biggest copper producer, would follow the “very reasonable” Freeport-Jiangxi agreement, said a company source who was not authorised to speak to the media and so declined to be identified.
“It is very good news for us. I believe this $62 will be the benchmark for 2020, but the spot price will remain quite lower than $62,” said Behrouz Rahmati, an investment manager and advisor to the CEO at National Iranian Copper Industries Company.
Chinese smelters are set to add 900,000 tonnes of annual smelting capacity this year and could add another 350,000 tonnes in 2020, research house Antaike said.
Official data showed refined copper output in China, the world’s biggest copper consumer, hit a record 868,000 tonnes in October, while global copper mine production declined by about 0.5% in the first eight months of 2019, latest data by the International Copper Study Group showed.
(By Shivani Singh, Tom Daly and Emily Chow; Editing by Richard Pullin, Christopher Cushing and Susan Fenton)
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