China’s top copper smelters have proposed to cut production by 5% to 10% and decided not to issue guidance prices for copper treatment charges (TCs) for the second quarter, two sources with knowledge of the matter said on Thursday.
The announcements followed a meeting of the China Smelters Purchase Team (CSPT) in the commercial hub of Shanghai after the world’s top producer of refined copper battled short supply of raw material and a sharp drop in TCs in the spot market.
Top smelters agreed the spot market had become disconnected from true market fundamentals, one meeting participant told Reuters.
“It is meaningless to set a guidance price in the current market,” the source added, speaking on condition of anonymity.
CSPT has declined to set guidance prices before, most recently in the second quarter of 2021.
Top smelters had also proposed output curbs in January but no specific actions were taken.
Smelters Jiangxi Copper, Jinchuan Group and China Copper did not immediately respond to Reuters‘ requests for comment.
“We believe the potential production cut amid lower-than-breakeven spot TC for smelters will support copper price,” Citi analysts said in a note.
The Citi commodity team expected the global copper market to be in deficits of 207,000 metric tons in 2024 and 215,000 tons in 2025 due to constrained supply, which could push the metal’s average price to $9,125 a ton this year and $10,250 in 2025.
However, benchmark three-month copper price on the London Metal Exchange fell 0.2% to $8,832.15 a ton by 0927 GMT.
A trader attributed the drop to the fact that the market had already priced in the output cut plan, which had taken the price to an 11-month high after it was announced earlier this month.
CSPT plans to expand by including three new members, the two sources said.
The group had previously set first-quarter guidance of $80 per ton and 8.0 cents per pound, as unexpected supply shortages hit the world’s top refined copper producer with a heavy reliance on overseas raw material supplies.
Supply shortages have been driven by mine-side disruptions, chiefly the closure of the big Cobre Panama mine owned by First Quantum.
TC/RCs, a key source of revenue for smelters, are paid by miners when they sell concentrate, or semi-processed ore, to be refined into metal.
The charges typically fall when the concentrate market tightens and smelters must accept lower terms to secure feedstock.
Spot copper TCs in China tumbled to $11.20 per ton on March 11, down 80% from the end of December and the lowest level since 2013, when pricing agency Fastmarkets started publishing the weekly index.
The rapidly falling TCs caused losses for smelters that rely largely on spot purchases, while the leading smelters get most of their concentrate through long-term contracts signed at the $80-a-ton annual benchmark.
Spot TCs are likely to recover from the historic low in the second quarter as smelters start maintenance. However, the shortage of supply is expected to last, given smelters’ growing output this year.
China’s refined copper production in January and February rose 10.7% from the corresponding months a year before to about 2.22 million tons, data from the National Bureau of Statistics showed.
In the first two months, China’s imports of copper ore and concentrate rose by merely 0.6% on the year to 4.66 million tons, customs data showed.
Despite the industry’s efforts to control output, China’s total refined copper output will increase by more than 3% this year, according to state-backed research house Antaike.
(By Andrew Hayley, Siyi Liu, Mai Nguyen and Beijing bureau; Editing by Tom Hogue and Sam Holmes)
