Copper sellers explore tolling contracts amid record-low TCs
Multiple copper sellers, including miners and traders, are reportedly in discussions with smelters to provide material under “tolling”-style contracts, several sources – some with direct knowledge of the talks – have told Benchmark.
Market sources said historically low treatment charges (TCs) have forced sellers to seek alternatives to the conventional treatment and refining charge (TC/RC) contract structure in an attempt to bolster profitability, with “virtual tolling” being mooted.
Benchmark understands that multiple offers of this style of contract have been proposed to ex-China smelters. While it is not yet clear how receptive smelters are to such contracts, at least one smelter is understood to be interested in securing contracts via tolling.
“Some customers are happy to take toll contracts if they can get the units,” said one sell-side market source.
Under a tolling arrangement, smelters would receive higher TC/RCs but would not market the material; instead, that refined copper would be returned to the concentrate seller, who would then handle the marketing. This means smelters would receive far higher TCs, but lose access to premiums and arbitrage opportunities.
Many participants noted that such contracts represent a last resort, with one sell-side source describing them as “a hail mary”.
Other market participants considered the proposal a means to improve optics, noting that gaining on TCs only to lose on premiums amounts to moving money “from one hand to the other” rather than improving business fundamentals.
However, multiple sources also said that such contracts could strengthen balance sheets by allowing smelters to boost capacity utilisation rates and record positive TCs in their accounts. One trader source noted that higher utilisation rates could lower overall operating costs.
Several sources added that tight market conditions are making both sides of the trade more creative, with one commenting that smelters welcomed sellers’ willingness to discuss the smelters’ concerns and explore alternative contract structures.
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