 "Copper smelting units negotiate higher conversion charges")
Indian copper smelters ramped up metal output this financial year to take advantage of the higher treatment and refining charges (Tc/Rc) accepted by miners for 2014. Negotiations are on for even higher charges in 2015.
With abundance of copper concentrate, global miners agreed upon a 31 per cent increase in Tc/Rc for 2014 at $92 a tonne and 9.2 cents a pound (lb), respectively. Smelting companies are seeking a 20 per cent increase in Tc/Rc to $115 a tonne and 11.5 cent a lb in the scheduled meeting for negotiations on Saturday.
Indian smelting companies include the Aditya Birla Group's Hindalco Industries and Vedanta group's Sterlite Industries. Tc/Rc are a major source of their income. The copper business is two-thirds of Hindalco’s, while Sterlite fully depends upon refining.
“Tc/Rc reflect the scarcity of smelting capacity, relative to the supply of concentrates. What we are seeing now, with spot Tc/Rc at recent highs, is a surge in new supply of the latter. New mines and expansion were already boosting supply, even before Freeport and Newmont resumed exports of concentrates from Indonesia; hence, the rise in spot Tc/Rc. With mine output clearly rising faster than smelting capacity, there is little reason for smelters to accept lower terms next year,” said Nic Brown, head of commodities research of London-based consulting firm Natixis Commodities.
Negotiated annually, the Tc/Rc is a conversion charge paid by mining companies to smelting ones for processing copper concentrate into cathodes. Smelters are able to charge a higher Tc/Rc in case of abundance of copper concentrate produced by mines. In the case of lower mined copper production, miners get a bigger say to determine conversion charges.
From a benchmark of $92 a tonne in 2014, markets would expect term deals for 2015 to be settled around $100 a tonne.
Smelters do appear to hold the upper hand here. As Tc continues to rise, their profits will improve further. Miners, in contrast, face higher Tc at a time when copper prices are under pressure, suggesting increasing pressure on their margins. Worse, many of these miners are producing concentrates high in arsenic content. Hence, they will be incurring penalties over and above the benchmark levels in the market.
Data from the ministry of mines showed India’s copper production at 311,182 tonnes in the April–August period this year, a rise of 85.5 per cent from 167,743 tonnes in the corresponding period last year. Hindalco reported 40.1 per cent rise to 160,426 tonnes, compared with 114,530 tonnes in the same period last year. Sterlite posted a three-fold increase in output to 132,610 tonnes in these first five months of the current financial year, as against 40,444 tonnes in the same period last year. The public sector Hindustan Copper reported 42 per cent growth.
“Smelting and refining margins are core business for Indian smelters. Hence, the increase in Tc/Rc will directly impact favourably on the balance sheet of Hindalco and Sterlite,” said Rikesh Parikh, vice-president (equities), Motilal Oswal Securities.
With abundance of copper concentrate, global miners agreed upon a 31 per cent increase in Tc/Rc for 2014 at $92 a tonne and 9.2 cents a pound (lb), respectively. Smelting companies are seeking a 20 per cent increase in Tc/Rc to $115 a tonne and 11.5 cent a lb in the scheduled meeting for negotiations on Saturday.
Indian smelting companies include the Aditya Birla Group's Hindalco Industries and Vedanta group's Sterlite Industries. Tc/Rc are a major source of their income. The copper business is two-thirds of Hindalco’s, while Sterlite fully depends upon refining.
“Tc/Rc reflect the scarcity of smelting capacity, relative to the supply of concentrates. What we are seeing now, with spot Tc/Rc at recent highs, is a surge in new supply of the latter. New mines and expansion were already boosting supply, even before Freeport and Newmont resumed exports of concentrates from Indonesia; hence, the rise in spot Tc/Rc. With mine output clearly rising faster than smelting capacity, there is little reason for smelters to accept lower terms next year,” said Nic Brown, head of commodities research of London-based consulting firm Natixis Commodities.
Negotiated annually, the Tc/Rc is a conversion charge paid by mining companies to smelting ones for processing copper concentrate into cathodes. Smelters are able to charge a higher Tc/Rc in case of abundance of copper concentrate produced by mines. In the case of lower mined copper production, miners get a bigger say to determine conversion charges.
From a benchmark of $92 a tonne in 2014, markets would expect term deals for 2015 to be settled around $100 a tonne.
Smelters do appear to hold the upper hand here. As Tc continues to rise, their profits will improve further. Miners, in contrast, face higher Tc at a time when copper prices are under pressure, suggesting increasing pressure on their margins. Worse, many of these miners are producing concentrates high in arsenic content. Hence, they will be incurring penalties over and above the benchmark levels in the market.
Data from the ministry of mines showed India’s copper production at 311,182 tonnes in the April–August period this year, a rise of 85.5 per cent from 167,743 tonnes in the corresponding period last year. Hindalco reported 40.1 per cent rise to 160,426 tonnes, compared with 114,530 tonnes in the same period last year. Sterlite posted a three-fold increase in output to 132,610 tonnes in these first five months of the current financial year, as against 40,444 tonnes in the same period last year. The public sector Hindustan Copper reported 42 per cent growth.
“Smelting and refining margins are core business for Indian smelters. Hence, the increase in Tc/Rc will directly impact favourably on the balance sheet of Hindalco and Sterlite,” said Rikesh Parikh, vice-president (equities), Motilal Oswal Securities.