Glencore and Trafigura are urging Asian smelters to accept lower spot prices to convert copper mined this year into the metal, rather than much higher industry benchmark prices, according to three people familiar with the matter.
Historically, the industry has used an annual fee basis, known as a processing fee (tc), in contracts to process concentrates into copper.
But London-listed Glencore and Trafigura want to build on the spot market, where the expansion of smelting capacity in China and around the world and tight concentrate supplies have pushed down processing costs.
Commodity traders Glencore and Trafigura have offered to pay Asian smelters TCS linked to a basket assessment of 2024 supply by price reporting agencies such as Fastmarkets and SMM, the sources said.
The sources requested anonymity because they were not authorized to speak publicly on the matter.
The two exchanges also intend to impose a cap on the price of copper to lock in profit margins as rising supply from the mine threatens to push prices higher. Last year's supply was estimated at around 22 million tonnes, and some analysts have said the market could suffer a shortage this year if disruptions persist.
A source at a major smelter said that unless supply improves after the Lunar New Year in February, smelters may have to accept the traders' conditions.
A second smelter source said Trafigura and Glencore both wanted to keep tc at around $60 a tonne, adding that the ceiling could vary depending on production and relationships. There is no minimum, only a proposed cap, the sources said.
Glencore and Trafigura declined to comment.
Activity among the biggest producers and consumers will slow ahead of the Chinese Lunar New Year holiday, which starts on Feb. 10.
The cost of processing concentrates on the spot market has fallen to about $40 a tonne, 50 per cent below the benchmark price of $80 a tonne, as supply chain disruptions have led to a shortage of raw materials and increased smelter capacity in China.
In November, Chilean miner Antofagasta reached an $80 a tonne price deal with China's Jinchuan Group, before mines in Panama closed and Anglo American slashed its iron ore forecast in December.
China owns half of the world's copper smelters and is the biggest buyer of raw materials such as copper concentrate and scrap. Customs data showed that China's imports of copper ore and concentrate reached a record 27.54 million tons in 2023, up 9.1 percent from 2022.
In 2022, Glencore supplied more than 1 million tonnes of copper metal and concentrate to the world, and its forecast for 2023 is also around 1 million tonnes.
Trafigura does not disclose the size of its copper portfolio, but the company supplies copper concentrate to smelters around the world.
