(Bloomberg) -- Several major Chinese copper smelters have agreed to a 9% drop in processing fees, falling into line with an initial deal signed two weeks ago as the shutdown of a major mine in Panama spurs fears over supply.
Jiangxi Copper Co. and Aluminum Corp. of China unit China Copper are among the companies that have agreed to a reduction in the fees paid by miners to smelters, known as treatment and refining charges, according to people familiar with the matter.
The negotiations between copper miners and Chinese smelters are critical to the global copper industry, setting the price for millions of tons of copper ore shipments. While Jinchuan Group struck a deal for fees of $80 a ton and 8 cents a pound with Chilean miner Antofagasta Plc two weeks ago, other Chinese smelters had resisted following suit.
But the closure of First Quantum Minerals Ltd.’s large Cobre Panama mine has upended the outlook for next year, prompting a scramble for supply that has driven processing fees on the spot market sharply lower.
Jiangxi has struck a deal at $80 a ton and 8 cents a pound with Freeport McMoRan Inc., while Jiangxi and China Copper have struck deals at the same level with Antofagasta, the people said, asking not to be identified as the discussions aren’t public.
The deals make it likely that the price will be accepted by the industry as the annual “benchmark” price, which is then used as in a large number of other contracts.
Smelters are a vital cog in the supply chain, converting concentrated ore into metal that’s used in everything from home wiring to solar equipment, with China having the biggest processing industry by far.
The drop in fees indicates the market for copper ore, known as concentrate, is tightening.
The tighter copper concentrate market doesn’t automatically imply a tighter market for refined metal, since it is partly driven by an expansion in copper smelter capacity, which could lead to higher production of metal and so lower prices. But over time, the lower processing fees could force some smelters out of business, ultimately reducing supply of refined metal just as many observers anticipate a rapid increase in demand due to the energy transition.
Antofagasta declined to comment, while Freeport, Jiangxi and China Copper didn’t immediately respond to requests for comment.
--With assistance from James Attwood.
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