China's zest for refined copper fires local smelters

Analysts say even if China slows a bit, its refined-copper demand in absolute numbers would still be a lot

Rising demand from China for refined copper could take the treatment and refining charges (Tc/Rc) of the concentrate higher in 2014, well above the 2013 benchmark of $72 and 7.2 cents, analysts and officials said.

Hindalco Industries and Sesa Sterlite are set to get better Tc/Rc next year. However, income from by-products such as gold, silver and sulphuric acid may remain subdued because of their lower prices.

Projections for Tc/Rc echoed at the China International Copper Conference 2013 held recently at Kunming. Those ranged from $80 to $95 a tonne, said a Citi Research report. Though higher, these are lower than the earlier market expectations of $100 and 10 cents.

"Even at $72 and 7.2 cents, Indian copper smelting companies were making money," said Giriraj Daga, analyst at Nirmal Bang Securities. "Anything higher than that will allow companies to make more money."

Increase in smelter maintenance globally had led to a rise in spot prices of Tc/Rc, going to $100 and 10 cents in the global market. This had led to higher expectations of Tc/Rc levels for 2014. However, with global smelter maintenance activity slowing, Tc/Rc levels are seen lower than earlier estimates, said an analyst at Citi Research. "Tc/Rc levels are seen strong and may be close to $100 and 10 cents," said an official from Sesa Sterlite. "Copper mining is seen higher from Chile and Brazil and if supply rises, Tc/Rc will increase," he added. Officials and analysts say if China decides to slow a bit, its demand in absolute numbers will still be substantial. "Tc/Rc is looking good," said Debu Bhattacharya, managing director, Hindalco Industries. At its post-earnings conference for July-September, the company said its outlook for copper business was stable and saw its Tc/Rc improving. Indian smelters are takers and don't necessarily influence benchmark charges. However, this time, negotiations for higher charges would help them. Citi Research said, globally, smelters' margins have not improved despite higher Tc/Rc because of lower prices of by-products.

Indian companies maintain sulphuric acid prices may remain lower, but higher refining charges will be a booster.