Copper Processing Fees to Rise as Ore Supply Swells, According to Aurubis

Fees paid by copper miners to smelters for processing crushed ore will rise next year as supply catches up with demand, said Aurubis AG, Europe’s largest smelter of the metal.

Spot charges have more than doubled in two to three months to $80 a metric ton and 8 cents a pound, Thomas Hoelandt, vice president of the Hamburg-based company’s primary-copper unit, said Oct. 18 in an interview. The fees rise when concentrates are plentiful because processors have less need to compete for raw materials to feed their smelters.

“The market is in surplus, and we expect it to remain that way over the next few months,” Hoelandt said, predicting a “rather balanced” market in 2011.

Concentrates were scarce in the last several years as smelters in China, the world’s largest copper user, added capacity and the world financial crisis delayed mining projects. Competition for raw materials pushed fees down to zero for some immediate-delivery accords this year, according to London-based researcher CRU. Smelters can sell byproducts such as precious metals and sulfuric acid.

“The situation has been such that some smelters could hardly survive, but now the concentrate market has improved,” said Bernd Drouven, chief executive officer of Aurubis, who spoke in the same interview.

Benchmark Fees

Annual benchmark charges fell this year to $46.50 a ton and 4.65 cents a pound from $75 and 7.5 cents in 2009 because of the lack of concentrates, according to Bank of America Merrill Lynch. Talks under way between smelters and mining companies on next year’s fees may result in benchmarks near 2009’s level, Hoelandt said.

Concentrate, crushed ore with a copper content of between 20 percent and 40 percent, is smelted to a purity of as much as 70 percent, processed in a converter and then refined into finished plates that are 99.99 percent pure metal, according to the International Copper Study Group.

Falling smelter revenues prompted HudBay Minerals Inc. and Xstrata Plc to shut Canadian units this year. Southern Copper Corp.’s La Caridad smelter in Mexico is operating at reduced capacity.

Sterlite Industries (India) Ltd. said in September a court ordered the closing of a 400,000-ton smelter after breaches of environmental rules. The company is India’s largest copper producer and a unit of Vedanta Resources Plc. A higher court granted an interim order in the following month permitting the smelter to remain in operation until the middle of December.

‘Real Blow’

A shutdown may mean losing the capacity to process about 1 million tons of concentrates, which “could be a real blow” to mining companies, Hoelandt said. Aurubis treats 2 million tons of concentrates annually.

Smelters in China and Japan have been running this year below the production rate expected by Aurubis, according to Drouven. The global utilization rate at smelters probably will be “a bit lower” this year, compared with about 80 percent in the last several years, he said.

The industry is operating at 67 percent of capacity, the lowest level in at least 25 years, CRU estimates.

Expansion by copper miners, which had to delay projects because of the financial crisis, will aid supply, according to the CEO.

Antofagasta Plc, which operates three copper mines in Chile, said Oct. 8 it will start up a fourth in November with a goal of reaching capacity of 200,000 tons a year by 2012. Rio Tinto Group, the world’s third-biggest mining company, in June approved $469 million of spending to develop the Eagle copper and nickel mine in the U.S. state of Michigan.

Record Output

Aurubis, which was started in 1866, produced a record 1.14 million tons of cathodes, as the refined plates are known, in the fiscal year through September.

Copper for delivery in three months has risen 13 percent this year on the London Metal Exchange after more than doubling in 2009. The contract gained $75, or 0.9 percent, to $8,335 a ton at 5:42 p.m. local time.

To contact the reporter on this story: Anna Stablum in Hamburg at astablum@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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