#China #CopperSmelters #CopperProduction #CommodityMarket #CopperPrices #SupplyShortages #CitiAnalysts #MiningIndustry
In a significant move that underscores the challenges facing the copper industry, China’s top copper smelters have collectively agreed to propose a reduction in production output by 5% to 10%. Additionally, for the first quarter, they have also resolved not to issue guidance prices for copper treatment charges (TCs), a decision informed by two knowledgeable sources. This decision came in the wake of a meeting held by the China Smelters Purchase Team (CSPT) in Shanghai, prompted by the acute shortage of raw materials and a notable decline in TCs in the spot market. The consensus among the top smelters points to a disconnect between the spot market and the true market fundamentals, rendering the setting of a guidance price impractical under the current conditions.
The backdrop to this unfolding scenario is a market grappling with supply shortages, partly attributed to disruptions at mining sites, most notably the closure of the large-scale Cobre Panama mine owned by First Quantum. The spot market for copper TCs in China witnessed a dramatic plunge to $11.20 per ton on March 11, marking an 80% decrease from the rate at the end of December and hitting the lowest level since 2013. This rapid fall in TCs translated into significant losses for smelters, especially those heavily reliant on spot purchases, contrary to leading smelters that secure most of their concentrate through long-term contracts. The current situation has prompted the CSPT to consider expanding by adding three new members to its ranks, aiming to bolster its collective bargaining and strategic planning capacity in the face of ongoing supply constraints.
Looking ahead, the copper industry faces a challenging landscape, with Citi analysts projecting global copper market deficits extending into 2024 and 2025, driven by constrained supply chains. This is anticipated to elevate the metal’s average price to $9,125 a ton this year and further to $10,250 in 2025. Despite these pressures, China’s refined copper production in the initial months of the year saw a marked increase of 10.7% compared to the same period in the previous year. This situation underscores the complex dynamics at play in the copper market – between supply disruptions, strategic production adjustments, and evolving market demands, indicating a period of heightened volatility and strategic recalibration for the industry.
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