November 17, 2019

Fresh off London Metals Week and with CESCO Asia looming, the industry remains focused on how low benchmark TCRCs will fall next year and how the smelting industry (particularly in China) will fair with terms, widely expected to fall toward the mid-60s/6s.

Grasberg has produced considerably less copper concentrate this year while around three quarters of a million tonnes of smelting capacity has been added in China. The tightening concentrate balance and expectations of further deficits sent spot TCRCs to 7-year lows in July/August. Spot terms have since made a modest (expected) seasonal turnaround but are still quoted in the mid-50s/5s to low-60s/6s for clean material, and the market continues to tighten structurally.

Expectations of even stronger concentrate demand in 2020 against a backdrop of particularly heightened mine supply risk stemming from social unrest in Peru and Chile, jurisdictional risk in the African Copperbelt, and technical execution risk at a number of substantial block caves, suggests concentrate deficits for 2020 are likely. Miners will push for a massive drop (from 80.80/8.08) in benchmark terms next year – expectations are for opening gambits in the 50s/5s.

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The copper concentrate market today is undoubtedly reminiscent of where zinc was at the end of 2017 - when the market tightened rapidly and spot TCs plummeted (eventually falling below $20/t in March/April 2018).

Indeed, the market was wrong-footed then by the voracity of the Chinese smelter cutbacks (or 'extended maintenance') closures, particularly in Q3 2018. The ensuing reduction in concentrate demand along with a flood of project development and mine restarts spurred one of the most volatile periods in a decade for the zinc TC market. The rate of ascent of spot TCs has since slowed, but clean material is still moving at $290-320/t. In stark contrast to copper, zinc oversupply is set to persist with more growth earmarked for 2020. This is expected to come from Antamina, Gamsberg, New Century and many others. Kazzinc ramps up Zhairem next year - the project is expected to produce 170ktpa of zinc in concentrate and 40 ktpa of lead in concentrate in the first full year of operation.

Peruvian warehouses are understood to be full of concentrates and while Chinese smelters are raising utilization rates month-on-month, they are positioning concentrate purchases to maintain relatively low working capital (in anticipation of lower zinc prices in 2020) whilst ensuring just enough material is booked to operate fully through the winter period. With smelters clearly more selective, there is a growing risk that newer entrants with complex qualities will struggle to place this material irrespective of TC in 2020.

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A general reduction in lead concentrate demand (more so than any meaningful gains in mine supply) have driven the lead concentrate market of recent. After the Port Pirie issues and reduced utilization rates at primary lead smelters in China this year, lead TCs have surged and some material now requires TCs above $200/t to be placed.

The major impetus for a reduction in concentrate demand has been around Chinese primary and mixed feed lead smelters switching to higher proportions of secondary material within the feed mix. While part of this switch was driven by the period where TCs languished in the low 20s/30s and it became less profitable to treat concentrate. A major part has also been due integrated zinc and lead smelters opting to treat zinc smelting residues at their lead smelters in order to become environmentally compliant. However, treating the lower grade residues has prompted smelters to supplement overall feed with higher grade secondary material in order to maintain refined output levels. The net effect has been a reduction in concentrate demand. Hunan based smelters, in particular, have remained underutilized this year and it is understood that one of these smelters treating silver concentrates has declared force majeure citing changes to tolling customs rules. Consequently, the market has plenty of silver concentrates.
With Glencore announcing the decision to close its 120,000t/y Brunswick smelter before the end of 2019 and ongoing challenges expected at Port Pirie, the market for lead concentrate will ease further and term contracts should jump in 2020.

  • Cu Concentrate, CIF Main Port China (@26.5% Cu) - TC $60/t
  • Cu Concentrate (non-China compliant, CIF Main Port Asia (@25.5% Cu) - TC $85/t
  • Cu Secondary, CIF Main Port Asia (@53% Cu) - TC $140/t
  • Zn Secondary, CIF Main Port Asia (@50% Zn) - TC $380/t
  • Pb Concentrate, CIF Main Port China (@63.45% Pb) - TC $150/t
  • Au Concentrate, CIF Main Port China (@34g/t Au) - TC $50/t
October 16, 2019

If Treatment Charges (TCs) are a good historical proxy for Copper concentrate supply and demand, then copper concentrate producers should be reaping the benefits and posting strong profits. Indeed, the CIF China TC is around US$50/MT compared to US$90/MT this time last year. Unfortunately for mines, excellent concentrate demand does not translate into rising profits. The poor macroeconomic backdrop has been a drag on Copper prices, and it has started to weigh on miner's bottom line. Codelco reported a plunge of 70% in H1 profit, Mutanda will suspend production by the end of the year due to economic reasons, and China Moly has announced that its Tenke Fungurume copper/cobalt mine is now loss-making.
Despite the building strain in the mining universe, the market for financing hasn't dried up by any means. According to the local press, Zijin Mining plans to invest US$474 million in the Cukaru mine of the Timok copper-gold project in Serbia. The 80,000 tonnes per year operation would feed the Bor smelter. Mantos Copper has secured US$250 million to finance the expansion of its concentrator from 4.3 million tonnes per year to 7.3 million tons per year. Copper in concentrate production is expected to increase to 52,000 tonnes from current levels of around 42,000 tonnes. Over a longer-term horizon, Rio Tinto/BHP's Resolution project received mining permits from the US Forest Service, bringing it one step closer to development. Resolution has the potential to supply 25% of the United States copper demand.

While these new mining projects/expansions will support future growth in concentrate supply, the ongoing direction of spot TCs and benchmark negotiations have been driven by weaker mine supply and disruptions. Important drivers have been:

  • Grasberg's transition to block cave mine and mining of last sections of open pit which has led to a significant fall (>250,000 tonnes of copper-in-concentrate) in output compared to last year,
  • blockades at Matarani port restricting exports from mines that belong to Hudbay, MMG, Freeport and Glencore,
  • lower Chilean head grades. In addition, an increasing ratio of high arsenic material versus clean material is keeping a solid cap on clean copper concentrate TCs,
  • recently announced strike action at Antucoya, and Carmen De Andacollo.

At the same time, smelter capacity is continuously expanding. In August, Zijin started its 150,000 tpy smelter in Heilongjiang province, China. Daye Non-Ferrous Metals is increasing its copper capacity by taking a majority stake in a 5.7-billion-yuan plant which will produce 400,000 tonnes of refined copper per year by 2021. This will add to Daye's existing capacity of 500,000 tonnes.

Although we will likely see a slight seasonal trend pick up in TC over the next few months, as smelters hold off from buying before benchmark negotiations, fundamentals continue to be supportive of the copper concentrates market.

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October 10, 2019

The zinc concentrate market has faced increasing mine supply and decreasing smelter output in China over the last year. TCs for clean concentrates have increased from sub $20's during February/March 2018 to $290-320 by the end of September 2019.

This month, TCs of more complex concentrates (high on SiO2 and Mn) are around $315/dmt. After a couple of years of strict environmental inspections, Chinese mine supply has stabilized, and domestic smelters have remained fairly well covered via local mines for spot demand.

Consequently, there has not yet been strong appetite by Chinese smelters to purchase Zn concentrates on a spot basis from abroad.
Two items that have helped temper the ROW oversupply going forward are New Century Tailing's underperformance and Gamsberg's slower than expected ramp-up. Moreover, there have been shortfalls at many other assets (Penasquito, Myra Falls and others), including a few announced price-related closures. Nonetheless, the incremental supply of concentrates in 2019 remains poised to overshadow the gains of 2018 and may add about half a million tonnes of zinc-in-concentrate to the market.

On the buy-side, smelters are strongly incentivized to raise output and take advantage of high TCs as well begin with the typical winter restock. This should drive a strong increase in concentrate demand through the rest of the year.

For gauging the likely short-term direction of spot TCs, part of the question hinges on whether China's smelter utilization rates (and incremental demand for concentrate) will rise enough to offset the increase in domestic (plus imported) concentrate supply. Should Chinese smelters be able to raise utilization rates from the mid-80's, which have been seen in the first half of the year, to low-90's through the second half, incremental demand for concentrate would rise by 50-75Kt/month.

At these levels of increasing domestic concentrate demand, it appears likely that the Chinese concentrate market will tighten through the balance of the year, driving renewed demand for imported zinc concentrate - which has so far underwhelmed in the first half of the year.

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Port Pirie Smelter unexpected shutdown does not tell the whole story.
September 19, 2019

Treatment charges for lead have been hovering around $25/MT for the better part of the last 18 months. In July of this year, we saw this range break with TCs going to $50.

Then on August 12th, Port Pirie announced that it was shutting down its 160,000 MT annual capacity smelter for several weeks. Since then, TCs have increased to US$110/MT.

The lead concentrate market is a 4.5 million tons/year market, with Port Pirie taking in less than 3% of that stock. We do not believe that Port Pirie's shutdown is solely responsible for this dramatic increase.
The unexpected shutdown of Port Pirie Smelter in May, for example, had a limited impact on TCs. From what we are seeing in the field, we believe that tighter lending conditions in the Chinese market have a stronger impact on smelters. These conditions have reduced smelters' appetite to source concentrates, resulting in much higher than expected TCs. This lack of financing can also be felt in Chinese zinc smelting industry where utilization rates are low (high 80's) in comparison to where they could be given current near decade high (~US300/MT) TC levels.

With that said, the fundamentals of the lead concentrate market remain stable: weak Chinese domestic mine production this year is evidenced by strong demand from Chinese smelters for imported concentrates. We have observed small incremental increases in production from mines such as Lady Loretta and operations at Peñoles but that comes against the larger headwinds of San Cristobal's indefinite halt in production due to labor disputes, as well as Peñasquito's 6-week closure earlier in the year due to blockades.

While the slowdown in the automotive sector is a concern, we are seeing a less pronounced slowdown in electric battery vehicle sales than we are for gasoline vehicles. Furthermore, there is an inherent replacement cycle for lead batteries, providing some support in times of macroeconomic uncertainty. The August/September season is generally particularly strong with a good appetite for lead from battery makers.

We do not see the Port Pirie Smelter reopening in the immediate future. The Port Pirie's Regional Health Service issued a worrisome report about 45% increase in lead levels in the blood of young children within the past year. This became another serious concern on top of the current technological difficulties that the smelter is already facing.

In other news, Anglo American may face a class-action lawsuit on a lead mine in Zambia, where it managed operations over a half-century ago. Galena Mining's major shareholder Tim Roberts is doubling down on his investment, bringing his interest to 14.7%. Galena's flagship Abra mine completed its Feasibility study in July, with an estimated yearly production of 95,000 MT of lead and 805,000 ounces of silver for a capital expenditure of US $170 million.

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September 06, 2019

We are happy to introduce Edouard Pénot - Base and Precious Metal Concentrates Trader, a new member of Open Mineral team.

Edouard's experience:
  • Over 10 years in physical commodity trading and finance
  • At his previous position with Transamine, Edouard traded base metal concentrates
  • Worked as a senior associate for Morgan Stanley in Fixed Income.
  • Masters in Metals and Energy Finance from the Royal School of Mines, Imperial College London
We asked Edouard for a short overview and insights from his latest business trip to Australia.

From the field:
Port Pirie's shutdown is creating dramatic upward pressure on TCs - now north of $100/dmt - a 200% increase from last month. Some local parcels have recently been reallocated out of Port Pirie to smelters and traders. We visited a few gold miners, and the sentiment is very bright, with strong reverse inquiries from smelters and traders.
  • Cu concentrate spot TC/RCs are at their lowest levels since 2012 (below $50/0.5), indicating a tightening concs market.
  • Miners are still suffering the perils of low prices, with August-to-date price at around $5,710, a 3.9% (~$230) decrease month-on-month.
  • Zinc market remains under pressure, with TC for more complex material well in excess of $300/MT, with some parcels struggling to find buyers at any price.
  • Not surprisingly, gold prices continue to increase. Gold is up 19.2% year-to-date (+$247) amidst US-China trade war, an automotive decline, and Brexit uncertainty.
  • Moreover, the strong tailwinds are now picking up prices on silver, which is now up 7.5% ($1.18) month-on-month

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