【Commodity Basics】How Physical Metal Trading Works: Copper as a Case Study
Quote from chief_editor on May 26, 2026, 3:30 pmPhysical copper trading explained using LME pricing and cargo deal structure. Understand how metal traders buy, sell, and price copper concentrate and cathode.
Physical copper trading involves the buying and selling of actual copper in its various physical forms — copper concentrate (the raw output of a mine), copper blister, or copper cathode (the refined, market-grade product). These forms trade at different points in the supply chain and involve different counterparties, pricing structures, and documentation requirements. Understanding how copper moves from mine to end-user is a practical foundation for anyone entering physical metal trading.
Copper is priced using the London Metal Exchange (LME) as the primary benchmark. The LME is a metals exchange based in London that publishes official daily cash and forward prices for copper and other base metals. The LME copper price refers to Grade A copper cathode of a specific purity and shape meeting LME specifications. Physical copper transactions — whether cathode, rod, or concentrate — are all priced as a differential to the LME price.
The Structure of a Copper Cathode Trade
Copper cathode is the refined form of copper that meets LME Grade A specifications (minimum 99.99% purity) and is the most commonly traded physical form between producers, trading companies, and end-users such as copper rod mills and wire manufacturers.
A typical cathode trade is priced at LME Cash Settlement plus or minus a premium. For example, assume a trading company in Geneva buys 500 metric tons of copper cathode from a Chilean smelter at LME Cash Settlement plus $80 per metric ton, Free on Board (FOB) Valparaíso, with pricing based on the average LME official cash price during the five business days following the Bill of Lading (BL) date. The buyer then resells the cathode to a Chinese rod mill at LME Cash Settlement plus $110 per metric ton, Cost, Insurance and Freight (CIF) Tianjin, with pricing based on the average LME price during the month of arrival. The $30 per metric ton difference in premiums — plus any favorable freight and timing differential — constitutes the trader's gross margin.
The reason LME pricing uses an averaging period rather than a single day's price is to reduce the impact of single-day price volatility. Both buyer and seller carry price risk relative to the LME during the pricing window unless hedged with LME futures.
Copper Concentrate and Treatment Charges
Copper concentrate is the output of the mining and flotation process, containing typically 25-35% copper by weight along with other minerals. Concentrate is not finished metal — it must be further processed by a smelter to produce copper metal. The pricing of copper concentrate is more complex than cathode pricing.
Concentrate is priced based on the payable copper content (the percentage of the contained copper value the seller receives), minus treatment charges (TC) and refining charges (RC) paid to the smelter. The TC/RC represents the smelter's processing fee. For example, in periods of mining surplus when mines compete for smelter capacity, TC/RC levels rise. When smelter capacity is tight, TC/RC levels fall as smelters compete for concentrate supply. The annual TC/RC benchmark is typically set through negotiations between major mines and smelters and then adopted as the industry reference.
Deductions for penalty elements — arsenic, bismuth, antimony, and others that complicate smelting — are also applied, further reducing the net payment to the mine.
Quality inspection at loading and discharge is conducted by independent inspection companies such as Bureau Veritas or SGS, who certify weight and grade. Any difference between the certified quantity at loading and discharge — called a weight loss or moisture adjustment — is settled between the parties per contract terms.
Physical copper trading combines knowledge of the LME pricing mechanism, concentrate economics, and logistics — the ability to price a specific form of copper at a specific location, account for quality and processing costs, and manage the price risk during transit is the core technical skill of a base metal physical trader.
Physical copper trading explained using LME pricing and cargo deal structure. Understand how metal traders buy, sell, and price copper concentrate and cathode.
Physical copper trading involves the buying and selling of actual copper in its various physical forms — copper concentrate (the raw output of a mine), copper blister, or copper cathode (the refined, market-grade product). These forms trade at different points in the supply chain and involve different counterparties, pricing structures, and documentation requirements. Understanding how copper moves from mine to end-user is a practical foundation for anyone entering physical metal trading.
Copper is priced using the London Metal Exchange (LME) as the primary benchmark. The LME is a metals exchange based in London that publishes official daily cash and forward prices for copper and other base metals. The LME copper price refers to Grade A copper cathode of a specific purity and shape meeting LME specifications. Physical copper transactions — whether cathode, rod, or concentrate — are all priced as a differential to the LME price.
The Structure of a Copper Cathode Trade
Copper cathode is the refined form of copper that meets LME Grade A specifications (minimum 99.99% purity) and is the most commonly traded physical form between producers, trading companies, and end-users such as copper rod mills and wire manufacturers.
A typical cathode trade is priced at LME Cash Settlement plus or minus a premium. For example, assume a trading company in Geneva buys 500 metric tons of copper cathode from a Chilean smelter at LME Cash Settlement plus $80 per metric ton, Free on Board (FOB) Valparaíso, with pricing based on the average LME official cash price during the five business days following the Bill of Lading (BL) date. The buyer then resells the cathode to a Chinese rod mill at LME Cash Settlement plus $110 per metric ton, Cost, Insurance and Freight (CIF) Tianjin, with pricing based on the average LME price during the month of arrival. The $30 per metric ton difference in premiums — plus any favorable freight and timing differential — constitutes the trader's gross margin.
The reason LME pricing uses an averaging period rather than a single day's price is to reduce the impact of single-day price volatility. Both buyer and seller carry price risk relative to the LME during the pricing window unless hedged with LME futures.
Copper Concentrate and Treatment Charges
Copper concentrate is the output of the mining and flotation process, containing typically 25-35% copper by weight along with other minerals. Concentrate is not finished metal — it must be further processed by a smelter to produce copper metal. The pricing of copper concentrate is more complex than cathode pricing.
Concentrate is priced based on the payable copper content (the percentage of the contained copper value the seller receives), minus treatment charges (TC) and refining charges (RC) paid to the smelter. The TC/RC represents the smelter's processing fee. For example, in periods of mining surplus when mines compete for smelter capacity, TC/RC levels rise. When smelter capacity is tight, TC/RC levels fall as smelters compete for concentrate supply. The annual TC/RC benchmark is typically set through negotiations between major mines and smelters and then adopted as the industry reference.
Deductions for penalty elements — arsenic, bismuth, antimony, and others that complicate smelting — are also applied, further reducing the net payment to the mine.
Quality inspection at loading and discharge is conducted by independent inspection companies such as Bureau Veritas or SGS, who certify weight and grade. Any difference between the certified quantity at loading and discharge — called a weight loss or moisture adjustment — is settled between the parties per contract terms.
Physical copper trading combines knowledge of the LME pricing mechanism, concentrate economics, and logistics — the ability to price a specific form of copper at a specific location, account for quality and processing costs, and manage the price risk during transit is the core technical skill of a base metal physical trader.