China's Major Copper Smelters Urge Production Reduction for Market Stability

The China Smelters Purchase Team (CSPT) has taken decisive action to address the plummeting copper concentrate treatment and refining charges (TC/RC) market, advocating for a collective production cut on January 26. This move aimed at stabilizing the market triggered a range of reactions from market participants.

During the meeting, the CSPT also urged its members to establish a procurement floor price, setting it at $50 per metric ton (mt) for TC and 5 cents per pound for RC. Importantly, the call emphasized not accepting additional terms such as changes in quotation periods and gold payable terms.

The TC/RC market has experienced a sharp decline, with spot TC/RCs falling by 67% since the benchmark was set at $80/mt in November 2023 through negotiations between producers and Chinese smelters. Despite the ongoing demand, the spot market has struggled to stabilize.

A trader noted that most market participants expressed support for the meeting, viewing it as an effective measure to alleviate the downward pressure on TC/RCs. Traders approached the meeting cautiously, adjusting their offerings as spot TCs continued to decrease. However, post-meeting, spot availability witnessed a significant increase, with sellers bundling March and April loading shipments together in packages ranging from 20,000 to 30,000 mt. This bundling tactic was interpreted as a sign that sellers were content with the prevailing TC/RC levels and were eager to maximize sales.

Although offers still lingered in the mid-$20s/mt from traders to smelters, sellers displayed reluctance to significantly raise their offers. Some traders expressed skepticism about the likelihood of major smelters implementing substantial production cuts post-meeting.

However, there were exceptions among CSPT smelters with urgent demand, who opted to withdraw from the spot market after the meeting. The decision was driven by the potential repercussions on import licenses from the Chamber of Commerce if purchases were made below the stipulated $50/mt TC level.

Facing this situation, some smelters acknowledged the necessity to rely on existing stocks, suggesting a potential administrative-level production cut. Despite uncertainties, there was an overall belief among smelter sources that the tension in TCs would ease.

The wide gap between spot TCs and the established floor price level led many market participants to adopt a wait-and-see approach, especially with the approaching Lunar New Year. On January 25, March loading clean copper concentrates were traded at $27/mt between a trader and a smelter, employing M+2 or M+4 pricing at the seller's discretion. The development of the market in the short term remains a point of keen observation amid the changing dynamics and market interventions.