Chinese smelters eagerly await concentration supply from Oyu Tolgoi

Chinese smelters expect supplies of copper concentrate to rise as early as late 2012, paving the way for higher charges, as the Oyu Tolgoi copper and gold mine starts to come onstream. That may prompt Chinese smelters to raise term treatment and refining charges (TC/RCs). “The startup (of Oyu Tolgoi) may help improve the concentrate shortage in the Chinese domestic market,” Mr. Yang Changhua, senior analyst at state-backed research firm Antaike said. Higher charges, typically seen when supply rises or demand falls, cut concentrate import prices.

China’s location makes it a natural buyer for Oyu Tolgoi concentrates, which are now being offered to Chinese smelters for term contracts starting in 2013. The mine is set to start production tests in June 2012, with Chinese buyers expecting some spot concentrate sales in the fourth quarter of 2012. Commercial production is scheduled to start in the first half of 2013. Spot concentrates typically are ad-hoc and offered only when they are available, compared to planned term sale.

Ivanhoe Mines has said while “present estimates anticipate the delivery of first ore from the open-pit mine to the concentrator during 2012, no sales commitments are being made for any potential production from the new mine in 2012”. Antaike’s Yang said the mine output will not be sufficient to cover China’s concentrate deficit, adding that Chinese smelters may still use the anticipated additional supply from Oyu Tolgoi as a bargaining chip to demand higher term TC/RCs in 2012. Industry sources said six large- and medium-sized Chinese copper smelters were in talks with Rio Tinto for 3-year term contracts for concentrates to be produced by the Oyu Tolgoi mine.