Direct Effect of TC on the LME Copper Prices

Byungkwon Lim,Hyeon Sook Kim,Jaehwan Park

doi:10.3390/economies8020036

Abstract

The motivation of this paper is to identify the effect of treatment charge (TC) on LME (London Metal Exchange) copper prices. It is a fundamental variable as a supply side factor, because it is related to the smelting process and reflects the level of concentrates market tightness. To examine this question carefully, the regression model is applied. This paper finds a statistically significant negative link between TC and LME copper prices. It is found that a 10% increase in TC of copper decreases in copper return by 1.8%. Subsequently, the vector autoregression (VAR) model is introduced to consider the impact of TC to copper prices as a permanent effect. It is found that the negative impact of the TC to copper returns dies out quickly. The statistical estimation in this article will provide a good reference for future study.

Highlights

Mining companies are beginning to embrace innovations including digitization, automation and environmental, social and governance (ESG) considerations going forward
The question may be arising: What is the relationship between treatment charge (TC) and price in copper price? We develop my hypothesis as the follows: Hypothesis 1 (H1)
The main objective of this paper is to identify whether the TC helps to explain the extent to which LME copper price moves in an inverse direction to TC

Summary

Introduction

Mining companies are beginning to embrace innovations including digitization, automation and environmental, social and governance (ESG) considerations going forward. That classical mining process it is still essential. Smelters in metal industry face a somewhat similar trend but essential process is same. TC (treatment charge) is one of the key smelting process factors within the metal industry. They are known by negotiated fees that may link to metal prices. The miner or seller should pay the TC to a smelter as a concession on cost of the metal concentrate. TC is important and seems like a positive operating margin element for the smelters, while it seems to be a negative operating margin element for mines. Most global sell-side brokers such as JP Morgan, Macquarie and Marex Spectron highlight the variation of TC in the London Metal

Objectives

Results

Conclusion