Traders are desperate for copper deals and miners are cashing in
A heated competition for copper among some of the biggest commodity traders is creating opportunities for miners to negotiate favorable terms ranging from huge upfront payments to extra-long contracts.
Recent moves by cash-flush energy traders including Mercuria Energy Group Ltd. to expand in metals — a market long dominated by Glencore Plc and Trafigura Group — are raising tensions and sparking a scramble for contracts, at a time when the industry is already facing an unprecedented supply squeeze in copper ore.
And mining companies are seizing the moment. One producer, Eurasian Resources Group, is seeking upfront payment for as much as $1 billion of its copper and aluminum production, in deals that have already drawn interest from bidders including Trafigura and Mercuria, according to people familiar with the matter.
Other firms have recently inked ore-supply contracts stretching well into the second half of this decade, at firmly attractive terms for the miners.
The competition in part reflects the impact as energy-focused traders seek to build out their metals businesses.
Mercuria in particular has been jostling for copper deals, and is in talks to hire one of the biggest names in the market — Trafigura’s former co-head of metals Kostas Bintas.
It also shows how the industry is dealing with a series of dislocations and contradictions: the world has enough refined copper but is desperately short of concentrates — the semi-processed ore needed to feed a fast-growing network of smelters.
And while copper demand is relatively tepid for now, both physical and financial players are positioning for widening deficits and soaring prices in the coming years.
The copper deals being signed with miners don’t generally involve speculation on the price of copper — but they nonetheless would likely deliver big profits for the traders if the forecast copper shortages come about.
The big metal prepayment deals being offered by Kazakh producer ERG have drawn strong interest from traders, according to the people familiar with the matter, who asked not to be identified because the information is private.
The company is offering about a year’s worth of the uncommitted production from copper assets in the Democratic Republic of Congo, as well as aluminum from smelters in Kazakhstan, they said.
The deals could cumulatively raise cash in the high hundreds of millions, and as much as $1 billion, the people said, adding that Mercuria and Trafigura have both held talks with ERG about the offers.
ERG’s Metalkol operation and Frontier mine produce around 200,000 tons of contained copper a year combined, while its JSC Pavlodar Aluminium Smelter has the capacity to produce 250,000 tons of LME-branded metal per year.
Glencore already has a contract to offtake cathodes from ERG’s Metalkol facility and is increasing the size of the prepayment under that deal.
“ERG operates on several continents and sharing details of every counterparty engagement is unproductive as it can result in speculation and spreading of misleading information on discussions that may never materialize,” the company said in response to questions.
“As such it is our policy to not share partial information until we can communicate accurate facts on finalized agreements and/or our partners.” Mercuria, Trafigura and Glencore declined to comment.
Traders paying cash upfront to secure supply is not unusual in commodities, but the size of the deals being offered by ERG are surprisingly large, indicating how the market has turned heavily in favor of sellers.
It has also become easier for traders to raise money from banks to make advance payments to ERG since a long-running investigation by the UK’s Serious Fraud Office into its subsidiary Eurasian Natural Resources Corp. was dropped last year.
Other recent deals suggest that traders are expecting the extreme supply squeeze in copper concentrates may continue for some time.
Several mining companies have clinched contracts at favorable terms that would have been unheard of just months earlier, stretching out as far as 2028, according to people familiar with the matter.
The deals include a contract for Capstone Copper Corp. to sell about 380,000 tons of copper concentrates from a mine in Arizona, to be delivered from 2025 to 2027, while Hudbay Minerals Inc.
recently offered some production from Peru even further forward — from 2025 until the end of 2028.
SOURCE:mining.com
