Declining TC/RC may hit smelters

Falling copper treatment and refining charges (TC/RC) are expected to hit large domestic smelters such as Hindalco and Sterlite Industries.

For the domestic players, the spot TC/RC typically accounts for 20-25 per cent of their copper division's earnings. Senior officials at Hindalco declined to comment on the current trend in TC/RC. An email to Sterlite Industries too went unanswered.

TC/RC is the rate that miners pay smelters for refining copper concentrate. Domestic players import copper concentrate from overseas mines and their smelters produce finished products such as copper cathodes. The TC/RC represents the profit margins for the smelters.

In the March 2007 quarter, Sterlite Industries had reported a 16.4 per cent y-o-y decline in its copper division's profit despite the production of copper cathodes rising 18.7 per cent y-o-y to 89,000 tonne during the same period.

A deficit of copper concentrate of 500,000 tonnes in calendar year 2007 has resulted in the TC/RC of smelters falling substantially over the last few months. Analysts at foreign brokerage houses point out that the spot TC/RC is currently estimated at 12-13 cents a pound compared with 20-22 cents a pound at the end of the March 2007 quarter. Senior officials of Australia-based BHP Billiton told global newswires that recent deals negotiated with smelters were done at lower TC/RC. A global deficit of copper concentrate in CY06 was estimated at 290,000 tonne.