China’s copper smelters are pushing back against a proposal from miner Antofagasta (LON: ANTO) to link prices of raw material concentrate under term contracts to the spot market fearing the move will hit their already weak finances, industry sources say.
Under their annual supply contracts, miners traditionally pay smelters fixed treatment and refining charges (TC/RCs) to process copper concentrate into refined metal. The charges, which reflect supply and demand in the copper market, make up a sizeable portion of the smelters’ revenue.
But with this year’s miner-smelter benchmark at zero and spot TC/RCs deep in negative territory due to a lack of concentrate supply, smelters are processing ore for free or even paying to do it, relying on bumper sales of sulphuric acid to make ends meet.
Chilean miner Antofagasta’s new offer in mid-year negotiations with Chinese smelters, as reported by Bloomberg News and Shanghai Metals Market earlier this month, would replace the fixed benchmark for term contracts with floating averages of spot market TC/RC assessments by price reporting agencies.
Antofagasta said its negotiations were confidential and it does not discuss them with third parties.
As things stand, smelters would have to buy concentrate at deeply negative TC/RCs under the proposal.
Spot TCs were around minus $126.80 a metric ton on Friday, compared with minus $119.3 a week before and minus $44.80 a year earlier, according to information provider Argus, well out of step with the annual benchmark.
More exposure to the spot market may boost revenue for Antofagasta, which has likely been selling more material at the benchmark than some of its rivals, said Albert Mackenzie, copper analyst at Benchmark Mineral Intelligence.
“The fact that they are seen as the benchmark negotiator does not necessarily help them. It puts extra pressure on their negotiations. And that might mean that they feel hard done by the current system,” he said.
One trader who supplied most of their cargoes to smelters via term contract previously told Reuters that they have started to sell more of their concentrate in the spot market from 2026 for “better economics”.
‘What choice do we have?’
Spot processing fees have slumped and stayed in negative territory since late 2024 due to constraints in mine production causing a shortage of concentrate, and as smelting capacity expanded rapidly worldwide, especially in China. The slump has cast a cloud on the whole annual contract pricing mechanism.
Nevertheless, managers at several smelters told Reuters they would oppose the idea of spot indexing for term supply. They declined to be identified as they were not authorised to speak to the media.
“Smelters need a stable pricing system,” one person said, adding that indexes could be easily manipulated by trading houses.
One metals industry veteran described the longstanding benchmark system as “the cornerstone of long-term stable cooperation between smelters and mines,” and was reluctant to let go of it, saying it not only helps smelters lock in costs but also facilitates management for the mine.
For some, however, there is recognition change is on the cards, with another smelter source saying it was only a matter of time before the market shifts to index-based pricing.
“It’s the reality, which has become irreversible,” the source said. “What choice do we have against the current market situation?”
(Reporting by Lewis Jackson, Amy Lv and Tom Daly; Editing by Sonali Paul and Muralikumar Anantharaman)
