A mine collapse in Indonesia has decreased regional oversupply of raw materials and Chinese copper smelters are looking to Rio Tinto’s Oyu Tolgoi mine for concentrates in the spot market.
The supply from Oyu Tolgoi will be imperative to copper production in the world’s top producer and consumer of the metal.
Many Chinese smelters have slashed production as they cope with shortage in alternative raw material scrap, Reuters reported.
Top company Jiangxi Copper Company and other smaller companies have slashed production in the past month due to supply reduction.
China was buying more spot concentrate in the Asia market to take advantage of the regional oversupply following India’s closure of its top smelter run by Sterlite Industries in March for environmental reasons.
But the oversupply is on the decline, according to traders.
“Trading houses are no longer desperate to sell,” a trader from an international trading firm who did not want to be named said.
Treatment and refining fees for spot copper concentrate rose slightly in the wake of the ease of oversupply in contrast with a 25 per cent boost in April from March. They rose from $75 in April to $76.50 per tonne in May.
Rio Tinto progressed on its funding discussions for an expansion of its Oyu Tolgoi mine in April. The expansion is valued at an estimated $5.1 billion.
At full tilt, it is anticipated the mine will produce about 450,000 tonnes of copper and 330,000 ounces of gold a year.
The mine is 66 per cent owned by Rio with the Mongolian state owning the rest. Rio and the Mongolian government have been at loggerheads over exceeding costs and management control.
Australian Mining recently reported the Oyu Tolgoi mine will be partly funded by taxpayers after Australia’s export credit agency said it will continue lending to multinational companies.
The mine will be also be funded by the Export Finance Insurance Corporation even though it was recommended the agency should focus on small to medium exporters that have trouble obtaining loans elsewhere.
Logistics for moving concentrates to China is almost finalised, according to two sources at different smelters who went to a Rio Tinto presentation earlier this month.
Copper concentrates to be transported to China will be checked by China’s quarantine authority at the mine. It will be packed in bags, with three tonnes per bag.
The bags will then be moved to a bonded warehouse in the Chinese border for deliveries to buyers.
Concentrate sellers pay the fees to smelters, who convert concentrate into refined metal. Their actions directly impact supply.
China’s imports of copper ores and concentrate increased by 37 per cent on the year, to 3.06 million tonnes this year. Out of this, Indonesia contributed 23,074 tonnes, customs data revealed.
But suspension of work at the Grasberg mine will not impact term shipments to China, Chinese smelters sources said.
Freeport-McMoran’s Grasberg mine collapsed two weeks ago, with the final death toll climbing to 28 people. Thirty eight workers were in safety training in an underground training classroom when it collapsed.
Ten people were rescued from the debris.
Indonesian President Susilo Bambang Yudhoyono and the Unites States based company have assigned an independent team to investigate the mine collapse.
Freeport Indonesia posted photos of the rescue efforts on its Facebook page, with the rescue team praying before beginning their operations.