Copper miners, including Freeport-McMoRan and Antofagasta, have made big cuts to copper concentrate tonnages and in some cases altered side terms for material delivered against benchmark treatment and refining charge (TC/RC) terms this year, despite the market rallying around a single number after a tense set of negotiations.
Chinese smelters have stood firm behind a single number TC/RC of $82.25 per tonne/8.225 cents per lb, agreed by the China Smelters Purchase Team (CSPT) leader Tongling Nonferrous and Freeport McMoRan in December. The deals have allayed market fears of a split benchmark and the complexities that could entail.
"The figure has been accepted by CSPT, so it will still be called the benchmark as CSPT will not accept another figure," a source from a CSPT copper smelter told Metal Bulletin.
But miners, with an eye on a mined copper deficit set to widen from 2018 onwards, have for the most part cut tonnage and deviated from standard side terms for material delivered against those benchmark contracts, sources with knowledge of the deals told Metal Bulletin.
In order to achieve benchmark TC/RCs, smelters have in many cases acquiesced on payment terms, precious metal payables and delivery options moving in favor of the mining side, several sources with knowledge of the deals said.
"Some smelters insisted to have the headline TC number at benchmark, so miners agreed but made adjustments on other terms including volume, payables, QPs, payment terms," a major copper miner said.
"There is a portion of tonnage cancellation for all customers," a second smelter source said.
The lessening of tonnages and shifting of terms agreed at the globally recognised benchmark TC/RC level could weaken the validity of that number itself and also increase the influence of traders in the copper concentrates market, by upping the need for smelters to source copper concentrates from non-mine sources.
Disagreements over contractual terms and consequent reductions in tonnage are expected to bring more liquidity to the spot market and have added more weight to the option of floating contracts against published indices.
This all comes after a 11% drop in annual benchmark terms to the lowest levels since 2013, because the market weighed smelter expansion in China against a lack of sufficient new mine supply.
"It's not surprising that - if producers think the market is going to get even tighter, that they want to take advantage of lower TC/RCs at a later date and not sell as much on long-term contracts," Metal Bulletin Research senior analyst William Adams said.
Influx of traders drags down spot TCs
A key feature of this year's annual benchmark negotiations was the proliferation of aggressive winning bids for miner-to-trader tenders alongside miner-smelter annual contract negotiations.
With some traders offering TC/RCs, discounts on the metal price paid to smelters for the cost of processing concentrates to metals, in the high $40/4 cents bracket, well below even spot terms.
Lowball bids have been attributed to established traders and market newcomers developing book building strategies, with the juicier margins in concentrates, over stagnant refined metals, the prize of success.
"Miners still want the security of the smelter offtake long-term," a third copper smelting source said.
"But the near-term economics between what the traders are offering and the benchmark is pretty damn huge, even compared to last year," the source added.
Tonnage gets cut
Reductions have also taken place in part due to Freeport's plans to develop underground mining at Grasberg in Indonesia, as well as its commitment to build a smelter there in the near future, several market sources said.
Freeport, which has been competing with Chile's Antofagasta as the major miner representative in benchmark negotiations, has told some customers that there will be no contract shipments of Grasberg tonnes in 2019. Others will still receive Grasberg concentrates, but a reduced tonnage.
The miner has forecast this in previous years, with production at Grasberg set to temporarily drop while underground deposits are developed there.
Meanwhile other miners are also proposing tonnage cuts, smelter sources confirmed to Metal Bulletin.
Reduced tonnage committed to a benchmark level has led some in the market to speculate that a return to contract discussions, where individual mines from all over the world had a part in negotiating with major smelter groups.
"We see the idea of what is the copper payable and what is the gold payable changing, I think the benchmark has limited life in it," a second mining source, who doesn't sell concentrates at the benchmark level, said.
"This year's benchmark is more of an indicator, several people in the industry don't necessarily agree with it," a fourth smelter source said.
Perrine Faye contributed reporting to this story.