The Copper Concentrate Market and Contract Terms Derivation

Although we have yet to reach the midway point in the decade, the copper concentrate market has already witnessed some of the most volatile swings in history, moving from record high treatment and refining charges in 1991-92 to historic lows, in real terms, during the past year. What has been the cause for such volatility? By and large the swings can be attributed to factors of supply and demand in the "custom" copper concentrate market. For example, two relatively recent events which had a major impact on the supply-demand balance were the shutdown of the Bougainville copper mine in Papua New Guinea in 1989 due to rebel insurgency and the startup of the La Escondida mine in Chile in 1992. The first event, threw a balanced to slightly surplus concentrate market into a substantial deficit, forcing treatment terms down as smelters, caught short by the loss of concentrate supplies scrambled to cover their positions. The second event, brought over 300,000 mt per year of new copper in concentrate to the market, more than reversing the losses from the Bougainville shutdown. In combination with other additions to mine capacity via new mines or expansions, the custom concentrate market moved into a huge oversupply in 1991-92 and many mines found themselves unable to place uncommitted tonnage. But even this event was quickly overcome by the use of underutilized capacity at non-traditional buyers, such as those in the C.I.S., Zambia, or those which were not traditionally buyers of custom materials. All of this has happened in the space of five short years, a mere snapshot in the history of the market. I'll return to these points a little further on, but first I would like to review the fundamentals which govern the copper concentrate market.