China copper smelters, Chile miner in deadlock over fee talks

Chinese copper smelters, faced with the prospect of negative fees for turning ore into metal, are in stalemate with a major Chilean miner in talks to set a crucial benchmark for the industry.

Annual negotiations between the smelters and Antofagasta Plc have not progressed since initial meetings took place during an industry gathering in Shanghai last week, according to people familiar with the matter, who asked not to be named because the talks are private.

While not a surprise, the deadlock poses an unwelcome challenge for China and the group of smelters led by Tongling Nonferrous Metals Group Co., which are hungry for the raw material needed to refine copper for the energy transition and electrification projects in the world’s second-biggest economy.

That key ingredient – copper concentrate – is in short supply as rapid growth in domestic refining capacity has outpaced mine expansions around the world. A series of unexpected mine outages has added to its scarcity, pushing spot treatment and refining charges below zero for the first time. This means that smelters are effectively paying to process ore.

The annual talks are important because they set the TC/RCs for the following year’s term contracts, a benchmark that is generally followed by the rest of the global industry. But this time it might be different. Smelters in other countries, with their margins squeezed, are already taking steps to secure their own deals, placing the established mechanism in jeopardy.

Chinese smelters are determined to avoid negative fees, taking the same firm line as their representative industry body, the people said. Chen Xuesen, vice president of the China Nonferrous Metals Industry Association, said last week that zero or negative fees would “severely undermine the interest of the global copper smelting industry, including China.”

The people were unable to confirm whether Antofagasta had made such an offer, saying only that talks were at an impasse and that there was no possibility of a deal in the near term.

Tongling and Jiangxi Copper Co., another major Chinese smelter involved in the talks, declined to comment on the negotiations. Antofagasta also declined to comment.

The 2025 benchmark level for TC/RCs was set at $21.25 a ton and 2.125 cents per pound — at the time, a record low. In separate negotiations, Antofagasta and another Chinese smelter, Jinchuan Group Co., agreed earlier this year to set TCs at zero for a portion of concentrate supply for next year, according to people familiar with that deal.

This year, spot treatment fees have plunged as low as minus $60 a ton. To cope with the decline, Chinese smelters last week pledged jointly to cut intake of copper concentrate by more than 10% for next year.

Japanese processors, meanwhile, are joining forces to flex their bargaining power in purchase negotiations, while Freeport McMoran Inc. – one of the world’s largest copper miners, but also a smelter – has signaled its intention to find alternatives for the TC benchmark. An executive from German copper smelter Aurubis AG said last week he was prepared to reject any excessively low annual benchmark.

Read More: China’s top copper smelters to cut output to combat negative processing fees