At a glance
The global seaborne copper concentrates market is undergoing its most fundamental structural change in decades. The long-standing determination of treatment and refining charges (TC/RCs) is under systemic pressure and is likely to collapse. This change is symptomatic of a broader trend of structural change in global commodities markets that is leading to an increasingly volatile pricing environment. This has material implications not only for offtake agreements, but for a large range of commercial contractual arrangements in the mining and metals sector that rely on benchmark or index-based pricing mechanisms.
What is changing
For more than twenty years, agreed TC/RC terms have been a key and relatively stable mechanism for determining pricing under international copper concentrates offtake agreements. Annual benchmarks were set through closed-door negotiations between major copper miners and major Asian smelters. The first settlement typically flowed through to all copper concentrate supplied under long-term offtake contracts for the applicable year.
However, the stability of the benchmark pricing system used to set TC/RCs looks set to collapse as pricing negotiations between major producers and Asian smelters are underway in 2026. This has now left the market questioning the viability of the annual benchmark pricing system for copper concentrates globally.
Historically, TC/RC negotiations reflected a broad consensus on the expected balance between supply and demand over the coming year. The stability of that system is now unravelling due to shrinking smelting margins, a shortage of copper concentrate supply, growing smelting capacity in China and rising copper prices in the global market.
Traditionally, miners and offtakers paid TC/RCs to smelters to cover the cost of converting concentrate into refined metal. These charges essentially operated as a discount to the value of the copper contained in the concentrates and were a key revenue stream for smelters. During the 2025 - 2026 contract negotiations for copper concentrates, this relationship started to fracture when a particular copper concentrates producer agreed to zero TC/RCs with a Chinese smelter for 2026 contracts and settlements were then agreed for TC/RCs that were below zero by other producers.
In effect, some Chinese smelters are subsidising miners due to the need to keep smelters operating given significant increases in processing capacity and shortages of copper concentrate supply. As TC/RCs have continued to fall, Japanese smelters have turned to higher domestic premiums as a cost-recovery mechanism, driving an increasing divergence in TC/RC levels across contracts globally.
Where pricing is likely to head
The result of the divergence is a breakdown of the long-standing annual benchmarking system, which is prompting a reassessment of copper concentrate TC/RC calculations worldwide. This shift and the factors driving it bear a significant resemblance to the breakdown of the iron ore benchmark reference pricing system in 2009 and 2010, when decades of stable annual price settlements fundamentally changed. Long-term iron ore contracts had historically been priced based on the first iron ore price agreed between a major Asian steelmill and one of the world’s largest iron ore miners for the applicable contract year.
In 2010, to mitigate the volatility of spot prices for iron ore (amongst other factors), some of the world’s largest iron ore miners announced that the annual benchmark reference pricing mechanism was no longer being used and replaced it with a quarterly pricing mechanism, which eventually resulted in the S&P Global Platts Iron Ore Index operating as the almost globally accepted new ‘reference price’ for iron ore. While the S&P Global Platts Iron Ore Index is currently facing its own uncertain future due to a variety of systemic and geopolitical factors, a clear parallel can be drawn to the collapse of the iron ore benchmark reference pricing system in 2010 to what is happening in the global seaborne market for copper concentrates currently.
Leading copper miners have already signalled the need for alternative pricing structures, arguing that current benchmarks no longer reflect underlying supply and demand dynamics. This is leading analysts to anticipate a shift toward alternative pricing models, including:
bilateral agreements;
quarterly pricing models;
capped TC/RC structures;
floor and ceiling prices; and
index-based pricing mechanisms.
With history repeating itself, there are some key learnings from the issues that the major iron ore miners experienced well over a decade ago that copper producers and other players with an exposure to copper concentrate pricing should be focusing on if there is a long-term and sustained movement away from benchmark pricing mechanisms for copper concentrates.
Although this change is currently unfolding in the copper concentrates market specifically, similar transitions have occurred, and are occurring, and are likely to continue to occur across a large number of critical minerals key to energy transition due to the highly volatile global geopolitical environment, increasing levels of government intervention, production, processing and supply chain concentration risks and currency fluctuations. The fragmentation of the link between spodumene concentrate prices and lithium hydroxide prices being a very recent and real example of the significant risks and issues that commodity pricing volatility can create for all entities involved in the applicable supply chains.
What to expect and how to prepare
The annual benchmark mechanism for the pricing of copper concentrates is very likely at risk of collapsing. However, an unstable pricing environment creates opportunities for miners, commodity traders, royalty holders and other players exposed to commodity price volatility to revisit their commercial arrangements to create regimes that offer greater contractual flexibility to accommodate structural changes in market based pricing and, on the other hand, considerably less desirable outcomes for those that are unable to do so.
The following key issues should be at the forefront of the minds of companies with an exposure to these issues:
Reconsidering pricing mechanisms
Over the shorter term, we can expect to see existing long-term copper concentrate offtake agreements being renegotiated as TC/RC talks progress between the major miners and offtakers. Industry players will need to carefully consider whether the pricing mechanisms embedded in their contracts contain sufficiently robust mechanisms to ensure that they can withstand a collapse of the benchmark pricing system and a period of uncertainty surrounding what the new ‘benchmark’ for pricing of copper concentrates will ultimately look like.
Other industry participants with an exposure to existing or new long-term offtake agreements and commodity pricing mechanisms should also be turning their minds to whether their existing or proposed pricing mechanisms and associated contractual machinery can withstand similar systemic disruptions.
Price renegotiation mechanisms
Many large value long-term commodity supply contracts contain price review mechanisms. In practice, these are often poorly suited to fundamental structural changes in the market for the pricing of those commodities. They often lack the sophistication and contractual machinery that provides the clarity needed when a pricing framework itself becomes obsolete.
The current environment presents an opportunity to revisit these mechanisms, not only in long-term copper concentrates offtake agreements, but in long-term commodity sales agreements for other minerals that are likely to be subject to significant pricing volatility going forward.
Flow-on effects across related arrangements
TC/RC-linked calculations in other contractual arrangements (including royalties, deferred and contingent consideration payments and farm-in structures) should be reviewed to ensure that they contain mechanisms that sufficiently mitigate the risk of these arrangements becoming unworkable or the subject of protracted disputes in the event that a new pricing structure for copper concentrate emerges.
The same applies equally to other commodities where the existing market environment may result in a particular index or other form of pricing mechanism ceasing to be reflective of market pricing over the short or longer term, with key examples being iron ore and spodumene concentrate, amongst many others.
Increased litigation risk
When pricing clauses fail and parties do not adequately address the issues outlined above, risk exposure to complex, expensive and protracted litigation increases. The ‘Royalty B’ litigation between CITIC and Mineralogy is a clear example of how this risk can manifest. If the parties to such arrangements are unable to agree more flexible mechanisms, then there will be an increased propensity to refer the issue to court or arbitration for determination. Accordingly, dispute resolution provisions in long-term offtake contracts and other contractual arrangements that rely on a particular commodity pricing mechanism should be revisited to ensure they remain fit for purpose and have fallbacks to create a degree of flexibility rather than risk protracted litigation and arbitration proceedings.
Expert determination mechanisms
Where expert determination mechanisms are used to address commodity pricing issues, careful thought needs to be given to the market dynamics surrounding the identity of those that are experts for the particular commodity and the ways to mitigate the risk of the wrong expert making a determination on something as fundamental as price. This issue becomes even more acute for bespoke commodities, where the number of experts or their commercial alignment with miners or refiners can play a significant role in what the expert will ultimately determine.
Ensuring these factors are fully considered in expert determination provisions having regard to the particular commodity in question can help mitigate the commercial risks associated with a third party ultimately determining what a commodity pricing mechanism will look like.
Key takeaway
The seemingly inevitable collapse of the long-standing copper concentrate pricing mechanism is reflective of a broader global environment of pricing volatility in the metals and mining sector. Historical benchmark and single index-linked pricing mechanisms are no longer a given. If you have contractual exposures to commodity prices that are facing structural pressure, whether through offtake arrangements or other commercial contracts, now is the time to test whether your contracts are fit for purpose and adaptable to rapidly evolving systemic changes.