Why Is the Copper Concentrate Benchmark Result So Important? [SMM Analysis]

According to SMM, on the evening of December 5, 2024, Antofagasta first finalised the 2025 copper concentrate long-term contract TC/RC with Jiangxi Copper Corporation at $21.25/mt and 2.125¢/lb, respectively. On December 6, 2024, Jiangxi Copper Corporation, China Copper, Tongling Nonferrous, Jinchuan Group, and Daye Nonferrous finalised the 2025 copper concentrate long-term contract TC/RC benchmark with Antofagasta at $21.25/mt and 2.125¢/lb. The 2024 copper concentrate long-term contract TC/RC benchmark was $80/mt and 8.0¢/lb.

At first glance, most people in the market would think that this figure is far from the production cost and psychological price level of the smelters. Perhaps only the smelters involved in the negotiations know how arduous the process was to push the initial benchmark figure from a dozen to twenty-something, requiring repeated preparation, discussion, and negotiation.

There are two modes for the annual long-term contract negotiations: 1. Cross-year long-term contract negotiations, involving some Chinese smelters and Korean and Japanese smelters, including companies like Fuye and Xiangguang. 2. Antofagasta conducts two negotiations each year with the four major Chinese smelters, one before the end of June and the other before the end of December. Each negotiation determines the TC for 50% of the ore volume in the long-term contract signed with each smelter. This is what the market refers to as the "semi-annual long-term contract." Therefore, the TC is the arithmetic average of the two negotiation results. For example, based on the two semi-annual negotiation results in 2024, next year's Antofagasta long-term contract TC would be (23.25+21.25)/2 = $22.25.

The smelters signing the long-term contract with Antofagasta each have a business volume of about 50,000 mt, with some even less than 50,000 mt. From a business scale perspective, such a volume seems disproportionate to the influence of the benchmark figure. So why does the benchmark figure have such a profound impact on the copper concentrate market? Because at the year-end, smelters start negotiating long-term contracts for future years, and a significant number of sellers, including miners and traders, base their long-term contract quotes on the benchmark figure, such as "Follow BM" (flat with benchmark) and "BM minus a certain percentage." Therefore, the long-term contract negotiation results between Antofagasta and Chinese smelters are widely used in the settlement of long-term contracts between smelters and other sellers. The significance of the benchmark figure far exceeds the number itself, and the copper concentrate benchmark result and negotiation process directly affect the long-term contract negotiations for imported blister copper, imported copper cathode, and domestic trade copper cathode.

It is also worth mentioning that such a long-term contract TC level means real financial losses for Chinese copper smelters. Many sellers not only demand further deductions on the long-term contract processing fee but also seek additional benefits on the payable for copper, gold, and silver, as well as on the RC. This undoubtedly makes the situation even more difficult for Chinese smelters.