Copper rally receives new momentum – Commerzbank

According to Shanghai Metals Market, China’s leading Copper smelters have agreed to cut production by more than 10% in the coming year. This marks a significant development stemming from the collapse in treatment and refining charges (TC/RC), which smelters traditionally receive for refining Copper ore. The repercussions of this fee decline now appear to be enduring, Commerzbank’s Head of FX and Commodity Research Thu Lan Nguyen notes.

Copper prices hit record $11,300 amid production talks

“For context, China’s top smelters had already held regular discussions last year concerning margin pressures within the industry. At that time, a production cut was considered, but no consensus was reached among producers. Instead, Copper production continued to rise, hitting a record high in June of this year. However, the mounting strain from negative TC/RCs — meaning smelters pay a premium to mining companies to acquire raw materials — has now seemingly become unsustainable.”

“For a long time, there were concerns in the market about potential supply shortages due to insufficient raw material availability. We repeatedly pointed out that China’s metal production showed no signs of such shortages. However, these fears now appear to be materializing, fueling the already significant rise in Copper prices. On Friday, the price surged by around 2%, and yesterday it climbed further to a record level of approximately $11,300 per ton.”

“That said, the production cut has yet to manifest in hard data. The higher the Copper price rises, the more attractive it becomes for smelters that are not participating in the agreed-upon cuts to ramp up their production. Hence, uncertainty remains about how much Copper production in China, the world’s leading producer, will actually decline.”