In a major relief for Indian copper smelters, global miners have agreed to raise treatment and refining charges (Tc/Rc) by 10% for the first quarter of the current calendar year. Higher Tc/Rc reflects a recovery in copper mine supply after years of deficit.
Pan Pacific Copper, Japan's biggest copper smelter, has successively negotiated more than 10% increase in Tc/Rc for 2013 from global miner. Similarly, China's leading smelter, Jiangxi Copper, has also won increase in the charges from global miner Freeport McMoRan Copper.
The fees for Japan have climbed from $63.5 a tonne (Tc) and 6.35 cents per pound (Rc) last year, reports said, putting the 2013 figure above $69.85 and 6.985 cents, within the $65-$75 and 6.5-7.5 cents range expected by traders.
China's Jiangxi Copper and global miner Freeport McMoRan Copper and Gold settled Tc/Rc at $70 per tonne and 7 cents per pound, up 10.2% from $63.5 and 6.35 cents in 2012.
This sets the benchmark for the rest of global smelters including India’s Hindalco Industries and Sterlite Industries to get higher realization for converting copper concentrate into virgin finished products like cathodes. Consequently, Indian companies are set to get better fee as Tc/Rc this year.
“After the worse last year, higher fee for smelters is a good news for Indian copper smelters. Tc/Rc was very low last year which probably had hit the lowest in five-six years,” said a senior Sterlite Industries official.
Tc/Rc is the only fee which a smelter has relies upon as a major source of income. Such fee goes up when miners increase their output in anticipation of higher demand and push the same to smelters for conversion. It goes down when miners reduce their output in anticipation of lower demand and smelters keep looking for it for running their smelters smoothly.
“Tc/Rc is the only income for copper smelters. In India, copper concentrate mines are restricted only to the public sector Hindustan Copper.
Hence, Sterlite Industries and Hindalco Industries depend upon copper concentrate supplied by global miners. Consequently, their income fluctuates depending upon availability of copper concentrate for conversion and smelters’ negotiating capability with global miners for Tc/Rc,” said the official.
An email sent to Hindalco Industries did not elicit any response.
"The market's looking to be better supplied than the past two to three years. Increasing supply is coming out of operations like Escondida, giving smelters a stronger hand. Demand is going to be reasonable, but increasing mine supply is likely to outstrip the demand improvement while more smelter capacity from China is not likely to come on line until the second half," said strategist Nick Trevethan of ANZ in a report.
Pukhraj Sethiya, an analyst with PricewaterhouseCoopers, said, “The higher treatment and refining charges from miners to smelters would improve the margins for the merchant smelters though for integrated smelters, impact may not be material. At the same time, the increased treatment and refining charges are also expected to push up the price of copper."
Meanwhile, global copper miner Codelco reported a 5% decline in output between January and September, 2012 to 1.25Mt with hope to ramp up the output going forward.
Hindalco reported copper cathode production at 330,000 tonnes in the financial year 2011-12 compared to 336,000 tonnes in the previous year.
Sterlite Industries’ copper cathode production, however, shot up marginally at 326,000 tonnes in the financial year 2011-12 compared to 304,000 tonnes in the previous year.
