Copper processing cost up by 4 times copper smelting stocks anticipated to soar

In recent days, Jiangxi Copper Corporation (JCC) (600362), the largest copper smelting enterprise in China, has reached an agreement with BHP Billiton. In the first half of 2014, copper processing cost rose by 41%, resulting in TC at 99 dollars per ton and RC at 9.9 cents per pound. And it is also learned that according to this agreement, the processing cost of the first half of 2014 was higher than the annual base price (TC at 92 dollars per ton, RC at 9.2 cents per pound) that was agreed between JCC and Freeport-McMoRan (copper and gold mine subsidiaries).

It has been learned by journalist of Shanghai Securities News, according to the customs, copper enterprises in China will increase copper processing cost completely according to the new agreement, so that it is hopeful for tycoons of copper industry such as JCC and Tongling Nonferrous Metals Group (Tongling Nonferrous) (000630) to see a turning point in their performance.

Generally speaking, domestic smelting enterprises usually set long-term negotiated pricing (basically one-year price) and short-term spot pricing (market price). Relevant responsible person of Tongling Nonferrous told the journalist: “rise in processing cost is most favorable to Tongling Nonferrous, since our copper ores are basically imported, and in 2014, our cost of copper processing will be surely up to the level of JCC.” According to his introduction, the processing cost of 99 dollars per ton in the first half was quite a high value in recent years, but it was still far from the historical peak at 200 dollars. In 2013, according to the one-year price of Tongling Nonferrous, TC and RC were respectively 77 dollars per ton and 7.7 cents per pound. Increase in smelting cost in the next year will surely improve smelting performance of Tongling Nonferrous to a high extent.

A JCC employee said to the journalist: “sharp rise in processing cost must be good to our company. In spite of relatively abundant copper reserve in Jiangxi, self-sufficiency degree of copper ores is merely about 20%, and the rest should be imported or recycled. In 2013, TC and RC of our company were respectively 70 dollars per ton and 7 cents per pound”.

According to industrial analysis, once price of sulfuric acid, key byproduct of the above-mentioned two tycoons, rebounds, even if price of copper remains at the present level, it is still hopeful for the two companies to see a positive turning point in their performance.

It is also learned that Jiangxi Copper Co., Ltd. (JCCL), major shareholder of JCC, has signed collaboration agreement with Jiangxi Mining and Metallurgy Bureau of Nuclear Industry for joint development of uranium resources and nuclear power. This is the first time of JCC to step onto the field of uranium ore and nuclear power. Jiangxi is rich in uranium resources or occupies one third of the national total reserve, so according to analysis from overall listing as encouraged in reform of state-owned assets, upon profiting of this business, it still needs observation whether uranium ore assets would be injected into listed companies.