Copper Smelters Warn of Closures as Crunch Talks Get Underway

The global copper industry is bracing for potential smelter closures as market conditions tighten, with smelters warning of the challenges they face in the face of high concentrates costs and supply deficits. The annual supply talks, currently underway, are expected to provide some clarity on the future of the copper market, but smelters are already preparing for a difficult year ahead.

Copper smelters have been grappling with a persistent supply deficit of copper concentrates, which has led to a significant drop in spot treatment and refining charges (TC/RCs). The most recent Fastmarkets assessment of the weekly copper concentrates TC/RC index, cif Asia Pacific, was $(4.4) per tonne/(0.44) cents per lb, reflecting the tight supply situation. This has put significant pressure on smelters, particularly those with a high proportion of copper concentrates tied to the benchmark system.

The closure of the Cobre Panama copper mine in November 2023 and output cuts at some copper mines have exacerbated the supply deficit, leading to increased spot purchases by Chinese smelters. This has further driven down spot TC/RCs, with some smelters facing extremely low spot TCs that threaten their profitability.

The annual supply talks, which typically conclude at the end of the year, are expected to provide some insight into the future of the copper market. However, market participants are not optimistic about the outcome, given the persistent tightness in the supply of copper concentrates. The lack of factors such as smelter closures or a surge in the supply of copper concentrates is likely to make the talks challenging, with smelters facing significant risks from costly copper concentrates.

To mitigate the risks associated with high copper concentrates costs and supply deficits, smelters are exploring various strategies. Some smelters may choose to wait and see what happens with the spot market, while others may secure supply at the current benchmark number to avoid potential losses. Miners, such as Codelco, are also balancing short-term market volatility with long-term supply chain health, pursuing flexibility while valuing long-term relationships with clients.

The resilience of Chinese smelters in the current market conditions is largely attributed to their cost-competitiveness. However, even with this advantage, smelters are not immune to the challenges posed by the tight supply situation. The outcome of the annual supply talks will be crucial in determining the future of the copper market, with smelters hoping for a more favorable balance between supply and demand.

In conclusion, the global copper industry is facing significant challenges as smelters warn of potential closures amid high concentrates costs and supply deficits. The annual supply talks are expected to provide some clarity on the future of the copper market, but smelters are already preparing for a difficult year ahead. As the market awaits the outcome of the talks, smelters are exploring various strategies to mitigate risks and maintain their profitability in the face of a tightening market.