Acid shortage dominates copper economics concerns as fees tumble

Soaring prices for the acid, a byproduct of copper smelting, have buffered Chinese smelters from a collapse in treatment and refining charges, or TC/RCs, the fees miners pay smelters to process copper concentrate into refined metal.

But the new economics is facing a test in the lead-up to mid-year negotiations for annual contracts as China's decision to ban sulphuric acid exports from May leaves prices in some regions softening.

Smelters were already reluctant to lock in negative annual TC/RCs to avoid setting a precedent that would undermine the industry. Falling acid prices are likely to harden that stance, analysts and traders said.

In the last two rounds of talks for annual negotiations, held roughly every six months, miner Antofagasta agreed benchmark-setting processing fees of $0.

China’s sulphuric acid prices were at 1 760 yuan ($258) per metric ton on April 30, down 4.9% week on week, although they were still up 204% year on year, data from information provider Oilchem showed.

Spot treatment charges for imported copper concentrate in China have been negative for 16 months and are still falling, reflecting tight concentrate supply. They stood at minus $86.70/t on April 30, compared with minus $81.60 a week earlier and minus $42.60 a year earlier, data from information provider Argus showed.

Some smelters have been accepting negative charges on a spot basis because they are willing to rely on making money from sulphuric acid for short-term transactions, according to a source involved in miner-smelter negotiations.

Every 100-yuan ($14.64) net profit from one ton of sulphuric acid could offset around a $10 per-ton loss from processing fees, said two analysts on condition of anonymity as they are not authorised to speak to media.

Smelting a ton of copper produces 3.5 t to 4 t of sulphuric acid.

ACID SHORTAGE THREATENS SOME PRODUCERS

LME Asia Week attendees will also be watching for how the war-induced acid shortage, exacerbated by China's acid export ban, could lead to shortages elsewhere and raise costs for copper producers that use the chemical to leach copper from ore.

“Whether China’s acid export suspension affects smelter run rates and whether acid shortages elsewhere affect leach copper production will be in focus,” said Raghav Jain, who leads copper pricing at Argus.

Around a fifth of global primary refined copper production comes from solvent extraction and electrowinning, or SX-EW, operations, which use sulphuric acid as a leaching reagent, according to the International Copper Study Group.

Large producers have largely been shielded by term contracts and inventories, but smaller miners could face output cuts if shortages worsen, said Anna Xu, an analyst at Wood Mackenzie.

LME Asia Week kicked off in Hong Kong on Monday.