The Global factory production is slowing rapidly, and the United States and China trade war is casting a gloom over the vision for metals.
Contrarily, one part of the copper market is looking at the tightest since the highest level of commodities supercycle.
Under a new supply agreement signed with Freeport-McMoRan Inc., primary Chinese smelters accepted the lowest processing fees to make mined ore into finished metal.
Back then, China’s economy was increasing at 10% a year, and copper prices were trading at all-time peaks above $10,000 a ton.
Chinese smelters’ demand makes the miners struggle to keep up with them since there are low treatment and refining charges. This has been increasing production capacity over recent months.
The lower fees will raise the strain on those smelters just as a decline in China’s manufacturing production darkens the vision for refined metal demand.
With spot treatment charges already pulling some smelters into the loss-making territory, there are rising expectations that some firms will cut production.
Instead of producing a metal that is surplus to the requirement, they will just cut output.
Deutsche Bank AG’s analyst said the copper concentrate market was in a steady state. Besides, the market will get even tighter next year.
Also, it raises their risk of a potential supply response, specifically on the private smelting side in China. This was when he attended the Asia Copper Conference in Shanghai.
Top Chinese smelters, like Jiangxi Copper Co., and Tongling Nonferrous Metals Group Co., will get $62 a ton to treat concentrate.
Also, the two firms will receive 6.2 cents a pound to refine metal in 2020, according to an expert familiar with the matter. This is lower compared with $80.80 a ton and 8.08 cents a pound for this year.
Global Factory is Falling with Processing Fees
Tongling Nonferrous Metals Group Co. and Jiangxi Copper Co cannot comment on how to treat the concentrate.
Also, falling processing fees are not affecting prices today. They serve as a notice of the mining industry’s poor record in striking production targets and bringing new supply online.
Data from the International Copper Study Group show mine supply fell by around 0.5% in the eight months through August.
Miners say higher prices are in need to spark output and avert a deficit as demand swells in future years.
Consumption could increase by 2% a year until 2030. This means there is an additional 7 million tons of refined copper supply is in need. Anglo American Plc’s chief executive said that should offset more significant macro pressures. Also, it has kept copper prices fixed back at an average of just over $6,000 a ton this year.
Chinese smelters deplore the though fee environment at this week’s conference. A senior official at China Minmetals Corp.’s said copper unit said the firm had already curtailed some production.
The firm is losing money on spot charges in the $50s, according to the vice general Yan You. Also, the falling treatment charges are hitting chine smelters badly on Wednesday at a conference in Shanghai.
