* Q3 TC/RC floor set at $55 a tonne, 5.5 cents per lb - sources
* Smelter group’s minimum charges are down almost 25% from Q2
* Members will consider output cut if low rates persist - official
* Larger smelters will be reluctant to lose market share - analyst (Adds analyst comment, miner comment, background)
By Tom Daly
BEIJING, July 18 (Reuters) - China’s top copper smelters on Thursday lowered their floor treatment and refining charges (TC/RCs) for the third quarter by 24.7%, two people familiar with the matter said, with one adding smelters will consider cutting output if low rates persist.
The 10-member China Smelters Purchase Team (CSPT) set the treatment charge floor at $55 per tonne, and the refining charge floor at 5.5 cents a pound at a meeting in Hunchun, in northeast China’s Jilin province, said the people, who asked not to be identified due to the sensitivity of the matter.
The group has now cut its floor for two straight quarters. The TC/RC floor for the second quarter was $73 per tonne and 7.3 cents a pound and for the first quarter at $92 per tonne and 9.2 cents a pound. There was no floor set in the third quarter of 2018. The annual TC benchmark for 2019 was set at $80.80 a tonne last November.
Copper miners pay TC/RCs to smelters to process their ore into refined metal and CSPT members in China, the world’s top copper consumer, are supposed to adhere to the floor charges in any spot processing deals.
Lower minimum charges indicate a tighter copper concentrate market or ample smelting capacity and are good news for miners. A source at one copper miner said the rates were lower than he expected.
The new floor is in line with the latest spot processing rates assessed by Asian Metal AM-CN-CUCONC, which slumped this week to as low as $55 a tonne, the lowest since November 2012, amid rising competition for concentrate.
“Smelters may consider reducing production,” if TC/RCs remain low as they are losing money at current rates, said one official on the smelter team, who said production cuts were discussed at the meeting but did not specify at what scale.
The prospect of production cuts comes after China’s refined copper output rose 11.8% year-on-year in June to its highest since December.
Helen Lau, an analyst at Argonaut Securities, said Chinese smelters had previously been quiet over cutting production despite a wave of new capacity coming on stream and low TC/RCs squeezing margins.
“Everyone thinks (TC/RCs) are too low but so far there has been no collective effort to cut production,” she said, adding that larger smelters may not be willing to reduce output for fear of losing market share.
Reuters reported on July 9 that the CSPT’s two biggest members, Jiangxi Copper Co and Tongling Nonferrous, broke with tradition by signing contracts for copper concentrate in the first half of 2020 months before term supply is usually agreed. (Reporting by Tom Daly; additional reporting by Shivani Singh and Melanie Burton in MELBOURNE; Editing by Kenneth Maxwell)