According to Guosen Securities, around December 19, Chilean mining company Antofagasta and a leading Chinese copper smelter reached an agreement to set the 2026 copper concentrate processing and refining charges (TC/RC) benchmark at $0 per ton and 0 cents per pound, down from $21.25 per ton and 2.125 cents per pound in 2025. The zero benchmark reflects not only supply-demand imbalances between mines and smelters but also historically high byproduct and recovery rate revenues. Chinese smelters, with globally leading technology and cost efficiency, demonstrate strong competitiveness during downturns. The zero fee may accelerate capacity regulation measures, improving industry prospects.
Key insights from Guosen Securities:
**Long-term contract pricing and proportion matter** The 2026 TC/RC negotiation was challenging, concluding around December 19—two weeks later than usual—after failing to finalize during Asia Copper Week in late November. Earlier, a small-volume long-term contract between a Chinese smelter and Antofagasta had already set fees at $0/ton. Following force majeure at Indonesia’s Grasberg copper-gold mine (the world’s second-largest) in late September, negative 2026 fees were anticipated. The zero benchmark resulted from multifaceted considerations.
Long-term contract proportions may decline. Since Q2 2025, spot TC has hovered near -$40/ton, while annual contracts provided $21.25/ton, making them critical for smelter profits. Historically, major Chinese smelters secured over 90% supply via long-term contracts, but 2025 saw this drop below 80% due to tight supply. Though 2026 TC isn’t negative, reduced contract volumes could further pressure profitability.
**Unique context for zero fees** Beyond mine disruptions and smelter expansions, byproduct and recovery revenues hit record highs: 1. **Recovery rate profits**: Chinese smelters achieve ~98% recovery vs. the industry’s 96.5% benchmark, yielding ~1.5% of copper prices (e.g., ¥1,200/ton at ¥80,000/ton). 2. **Sulfuric acid byproducts**: Producing 1 ton of crude copper yields 3.5 tons of sulfuric acid. Current prices near ¥1,000/ton in East China (vs. ¥150/ton costs) generate ~¥2,500/ton copper, though volatility is high. 3. **Precious metal recovery**: Higher-than-benchmark recovery rates for gold/silver (e.g., 96% vs. 90%) add ¥500–1,000/ton copper at record metal prices.
Thus, mines and smelters accepted zero fees amid peak ancillary revenues. A sulfuric acid price crash (e.g., to ¥200/ton) would likely trigger a TC rebound.
**Zero fees to curb overcapacity** At November’s Cesco meeting, China Nonferrous Metals Industry Association warned zero/negative TCs could harm global smelters, challenging pricing norms. The China Smelters Purchase Team (CSPT) subsequently announced plans to cut 2026 copper concentrate processing capacity by over 10%. Zero fees may spur "anti-internal competition" policies, improving long-term industry health.
**Outlook and picks** Chinese smelters’ technological edge and cost control strengthen their position. Policy interventions or resumed production at key mines (e.g., Panama, Grasberg, Kakula East) could ease supply tightness in H2 2026.
**Top smelter picks**: Tongling Nonferrous (000630.SZ), Jiangxi Copper (600362.SH), Yunnan Copper (000878.SZ).
**Risks**: Unexpected mine disruptions; smelter overexpansion; sulfuric acid price declines.
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