The profitability of LS MnM, a domestic copper smelter, is expected to worsen as the smelting and refining charges (TC/RC) continue to decline due to a supply-demand imbalance of copper concentrate.
According to global commodities research firm Platts on the 10th, the short-term TC/RC for some smelting companies recently dropped to minus $90 per ton (t). The TC/RC index for copper concentrate on the Shanghai Metal Market (SMM) also recorded minus $43.5 per t at the end of last month, a decrease of $8.79 per t compared to the previous month.
TC/RC is the expense for extracting copper from copper concentrate at a copper smelter. Transactions are conducted based on the London Metal Exchange (LME) copper price, which varies according to the copper content of the concentrate. Generally, smelters purchase copper concentrate and charge TC/RC to mining companies, but recently, as the supply of copper concentrate has dwindled, smelters have been paying premiums to mining companies for raw material, leading to negative TC/RC values.
Even when TC/RC records negative values, smelting companies often do not halt production because they can sell rare metals extracted from copper concentrate or earn profits from upstream and downstream industries.
Industry insiders believe that while the demand for copper has increased due to the development of artificial intelligence (AI) and the transition to eco-friendly energy, the supply of copper concentrate has not kept pace, resulting in this situation.
Market research firm S&P Global projected that copper demand, which reached 25 million tons in 2021, is expected to rise to 31 million tons this year and to 53 million tons by 2050. However, the growth rate of copper production has been slow due to technological, cost, and environmental issues. According to the International Copper Study Group, global copper production increased by only 9% from 20.6 million tons in 2018 to 22.51 million tons last year.
A recent earthquake in the Democratic Republic of the Congo, a major copper-producing country, caused the Kamoa-Kakula mine to flood, worsening the forecasted ore supply shortage until the end of this year.
LS MnM is the only company that primarily focuses on copper smelting in Korea. Last year, its revenue reached 12.1163 trillion won, a 19% increase from the previous year, while its operating profit rose by 29% to 317.3 billion won, although the operating profit margin has remained in the 2% range for two consecutive years. The operating profit margin was 4.7% in 2022.
LS MnM plans to respond to the decline in TC and RC by enhancing the profitability of rare metals and gases such as sulfuric acid generated during the copper smelting and refining processes. LS MnM sells by-products such as tellurium and selenium, along with sulfuric acid and liquid anhydrous sulfuric acid, produced during the copper production process.