Copper Fees May Stay High on Japan Quake, China Imports Drop

Processing fees to turn copper ore into metal will likely be sustained at high levels next year after an earthquake in Japan shut smelting capacity and China imported less of the raw material, said Japan’s top smelter.

“The current level may remain to the end of this year” when mining companies including BHP Billiton Ltd. (BHP) and Freeport- McMoRan Copper & Gold Inc. begin annual talks for the fees with major smelters for next year, said Masanori Okada, chief executive officer of JX Nippon Mining & Metals Corp. The company owns 66 percent of Pan Pacific Copper Co.

Increasing charges paid by mining companies will boost revenue for smelters such as Pan Pacific and Sumitomo Metal Mining Co., the second-biggest producer of copper used to make pipes and wires. The March temblor and tsunami halted operations at smelters and refineries, including Mitsubishi Materials Corp. (5711)

Processing rates “have risen somewhat in the first half of 2011, which was heavily influenced by smelter outages in Japan, increasing spot offers,” said Michael Widmer, head of metals research at Bank of America Merrill Lynch in London. He was the second-most accurate forecaster for the metal for the eight consecutive quarters ended March 31, according to Bloomberg data.

Photographer: Akio Kon/Bloomberg

Masanori Okada, president of JX Nippon Mining & Metals Corp. Close

Masanori Okada, president of JX Nippon Mining & Metals Corp.

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Photographer: Akio Kon/Bloomberg

Masanori Okada, president of JX Nippon Mining & Metals Corp.

“Since then, spot treatment and refining charges have fallen again,” Widmer said on July 5. “We believe that the concentrates market is structurally not oversupplied, so see only limited upside to contract TC/RCs in 2012.” TC/RCs are treatment and refining charges.

Weather Disruptions

Weather disruptions in Chile, which supplies a third of the world’s copper, are reducing global stockpiles, MF Global and Barclays Capital wrote in e-mailed reports yesterday. Workers at Freeport-McMoRan Copper & Gold Inc. (FCX)’s Grasberg operation in Indonesia, the world’s second-largest copper mine, started a seven-day strike on July 4 to push for higher wages.

Smelters of the metal are “well supplied” into the third quarter and are mostly accepting treatment charges only above $100 a metric ton and refining charges above 10 cents a pound, Aurubis AG said on June 22.

Treatment fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper in the ore. The fees are deducted from the price paid by smelters to mining companies for the raw material.

Copper supply outpaced demand by 18,000 tons in March, compared with a 1,000-ton deficit in February, the International Copper Study Group said in a report on June 21. Demand will exceed supply by 279,000 tons in 2012, narrowing from a deficit of 377,000 tons in 2011, the group said April 15.

Pan Pacific, Mitsubishi

Copper for three-month delivery rose as much as 0.6 percent to $9,578 a ton, the highest level since April 27, on the London Metal Exchange before trading at $9,560.50 at 3:28 p.m. Tokyo time. The metal has gained 44 percent in the past year.

Some smelters and mining companies were said to have set annual contracts at $85 a ton and 8.5 cents a pound starting July 1, Okada said in an interview on July 5. Processors in Japan cover 10 percent to 20 percent of their annual volumes in the mid-year contracts, according to Daiwa Securities Capital Markets Co.’s analyst Takashi Murata.

Pan Pacific said May 19 that it agreed with BHP to $90 a ton and 9 cents a pound for the period from July to December, up from $70 and 7 cents in the first half. In January, the company set annual fees for the contract ending on Dec. 31 at $56 and 5.6 cents with Freeport. That compared with $39 and 3.9 cents for those starting July 1, 2010.

China Imports

Mitsubishi Materials, Japan’s third-largest copper producer, said July 1 that it maintained a force majeure on concentrate shipments to the Onahama smelter, even as the plant partially restarted. The smelter has an annual capacity of 258,000 tons. Force majeure is a legal clause allowing companies to miss deliveries because of circumstances beyond their control.

In China, copper concentrate imports fell 15.5 percent to 2.35 million tons in the January-to-May period, while imports of refined metal dropped 32.7 percent to 905,434 tons, according to the Beijing-based Customs General Administration on June 21.

“It looks like that China has put the brakes on smelting capacity expansion,” Okada said. China is the biggest buyer of copper concentrate, or semi-processed ore, and the biggest consumer of refined metal, accounting for 38 percent of demand last year, according to the International Copper Study Group.

Copper Stockpiles

Tightening monetary policy to curb inflation, decreasing competitiveness in export markets following higher labor costs and the yuan’s strength against the dollar have led the country to slow capacity expansion, Okada said. A power shortage and increasing demand for scrap metal amid lower ore processing fees have also limited expansion, he said.

China’s copper stockpiles have fallen as Japan has increased purchases to meet sales commitments at home and abroad after the quake, Okada said. He estimated Japan’s copper production losses from the disaster to reach about 100,000 tons.

“We may not see an increase in demand for rebuilding within this year in Japan,” Okada said. “Even if it happens, it may not be a drastic pick-up.”

Japan accounted for 5 percent of total refined copper consumption in 2010, according to the study group.

To contact the reporters on this story: Jae Hur in Tokyo at jhur1@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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