The Copper Market’s Arsenic Problem Is Back

(Bloomberg) -- Glencore Plc has opened a new blending plant in Taiwan to prepare potentially hazardous copper ores for smelting amid a surge in high-arsenic material hitting the market, according to people familiar with the matter.

Blending became big business for metals traders including Glencore and Trafigura Group Ltd. around the middle of the decade after the market was flooded with high-arsenic copper concentrates, a semi-processed form of ore. The issue is now resurfacing, boosting demand for high-quality, clean concentrates.

There’s been a particular increase in high-arsenic ores from some mines in Chile, said the people, who asked not to be identified discussing private information. By blending the concentrates with cleaner products from other mines, Glencore can reduce arsenic and other impurities down to levels that are safe for smelters to treat.

Growing Disparity

Another sign that the arsenic issue is returning is the growing disparity between clean and “complex” concentrates, which contain high levels of impurities. Traders are valuing high-quality copper concentrates much more highly than the high-arsenic ores produced at some mines in countries including Chile, Peru and Bulgaria. That’s been evidenced by a sharp spike in the fees that smelters charge to process complex concentrates.

Meanwhile, treatment and refining charges for clean concentrates have slumped to the lowest level in years on the back of an unexpectedly weak year for mine supply and strong demand from smelters and traders looking to feed their blending operations.

The renewed focus on quality is good news for miners like Antofagasta Plc, which sent shockwaves through the concentrates market earlier this month by signing a half-year supply deal for clean concentrates that included the lowest processing fees for a major long-term contract seen in years.

BHP Group, which runs the massive Escondida mine, has similarly been pushing for processing fees lower than those struck in long-term benchmark deals to reflect the clean quality of its concentrates.

“Along with Escondida material, Antofagasta concentrate is widely regarded as the best on the market for cleanliness and high quality, hence why Chinese smelters are keen to secure this supply,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said in a recent note. “On the back of grade declines and higher impurities such as arsenic, global copper concentrate quality has been trending lower.”

The widening arbitrage in pricing for the products is exacerbated by Chinese customs rules that prohibit smelters and traders from importing copper concentrates that contain more than 0.5% arsenic.

The rule means that the Chinese market is closed for any miners producing material above that threshold, and there are only a handful of smelters elsewhere in the world equipped to process their potentially hazardous cargoes safely. That leaves traders with an opportunity to buy the potentially toxic concentrates cheaply, blend them with large volumes of clean material, and then sell them into China at a profit.

To contact the reporters on this story: Mark Burton in London at mburton51@bloomberg.net;Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill, Nicholas Larkin

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