China's largest copper smelter has put forward a proposal to cut production by 5 to 10 percent and decided to no longer publish its copper processing fee (TC) guidance price for the second quarter, according to two people familiar with the matter on Thursday. The decision was made after a meeting of China's smelter Procurement Panel (CSPT) in the commercial hub of Shanghai, which had been faced with a shortage of raw materials and a sharp drop in spot market TC prices.
Participants told Reuters that large smelters were concerned about what was happening in the spot market and felt it had become detached from real market fundamentals.
It is worth noting that the last time CSPT declined to set guidance was in the second quarter of 2021. In addition, the large smelters had proposed in January this year to limit production, but did not take action.
For the proposed production cuts and the non-publication of TC guidance prices, Jiangxi Copper, Jinchuan Group and China Copper smelters have not commented on this.
However, market analysts have a different view. Citi's commodities team forecasts a shortfall of 207,000 tonnes in the global copper market in 2024 and 215,000 tonnes in 2025 due to supply constraints, which could push prices to $9,125 a tonne this year and to $10,250 a tonne by 2025.
However, the market reaction does not appear to have fully followed this prediction. Benchmark copper for delivery in three months on the London Metal Exchange fell 0.2% to $8,832.15 a tonne by 09:27 GMT. Traders believe that the market has already anticipated the production cuts of smelters, so the price of oil has not risen sharply.
At the same time, the CSPT also plans to expand its size with the addition of three new members. This decision may give the CSPT more influence and bargaining power to better respond to market changes.
Previously, CSPT had set first-quarter TC/RC guidance of $80 per ton and 8.0 cents per pound. However, due to its heavy reliance on overseas supplies of raw materials, the world's largest refined copper producer suffered an unexpected supply shortage, mainly triggered by the closure of the Cobre Panama mine owned by First Quantum.
TC/RC is the main source of income for smelters, which miners pay when they sell concentrate or semi-processed ore to refine into metals. When the concentrate market is tight, smelters have to accept lower prices for raw materials, resulting in a decline in TC/RC prices.
On March 11 this year, the Chinese spot copper TC price fell to $11.20 per tonne, down 80% from the price at the end of December last year, reaching the lowest level since Fastmarkets began publishing the weekly index in 2013. The rapid price decline has put pressure on smelters that rely mainly on spot purchases to lose money, while large smelters get most of their concentrate through long-term contracts at an annual benchmark price of $80 a tonne.
Spot market prices are likely to recover from historic lows in the second quarter as smelters begin to enter a maintenance period. However, given that smelters are still ramping up production this year, supply shortages are expected to persist.
In January and February, China's refined copper output rose 10.7% from a year earlier to about 2.22 million tons, according to the National Bureau of Statistics. However, China's imports of copper ore and concentrate rose only 0.6 per cent year-on-year to 4.66m tonnes over the same period, according to customs data.
Despite industry efforts to rein in output, Antaike, a government-backed research group, forecasts that China's total refined copper output will rise more than 3 per cent this year. This shows that despite the challenges of supply shortages and falling prices, China's copper smelting industry has maintained some growth momentum.
