Copper’s Art of the Deal – by David Fickling (Bloomberg News – December 6, 2017)

The seeds of Tuesday’s 4.6 percent copper slump — the sharpest in almost three years — were planted in a scarcely noted non-event earlier this month.

Smelters and miners meeting during Asia Copper Week in Shanghai failed to come to an agreement over processing fees for 2018, and split without an agreement on a benchmark price, a smelter official with knowledge of the matter told Bloomberg News Friday.

Such miner-smelter agreements on treatment and refining charges, or TC/RCs, are an important indicator for the direction of the two industries we collectively call the copper market. Miners produce largely concentrates, a powdery brown intermediary product that’s then sold to smelter-refiners to turn into the pink metal itself. Just six of the world’s top 20 miners appear on the list of the world’s top 20 refiners.

As a result, although most miners make some refined copper cathode on the side, much of their information about demand from end-users still comes not through their own contacts, but from soundings with the smelters.

These talks follow a familiar pattern. If the supply of concentrates outpaces smelter capacity, TC/RCs rise as miners are forced to pay more to get their place in the queue. When concentrate supply is weak and smelting capacity strong — broadly speaking, the situation we’ve seen over the last two years or so — TC/RCs ought to fall.

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