Pan Pacific, Sumitomo Won’t Buy Copper Ore From BHP in 2012

Pan Pacific Copper Co. (PPCCZ) and Sumitomo Metal Mining Co. (5713), Japan’s two largest producers, won’t purchase concentrate from BHP Billiton Ltd. (BHP) this year via an annual contract.

Pan Pacific ended negotiations for an annual contract, a senior executive who declined to be identified as the discussions were private, said today. Sumitomo Metal Mining spokesman Masashi Takahashi said it won’t purchase concentrate from BHP this year under an annual contract after failing to reach an agreement on processing fees.

Japanese smelters have struggled to secure 2012 fees with BHP after agreeing with Freeport-McMoRan Copper & Gold Inc. to charge $63.5 a metric ton and 6.35 cents a pound, up from $56 and 5.6 cents in 2011. An increase in fees, known as treatment and refining charges, or TC/RCs, boosts smelters’ revenue.

“This is a rare case for annual deals,” said Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. in Tokyo. “The volume of concentrate this year with BHP may not be very significant or BHP’s offer may be less than Freeport’s.”

Kelly Quirke, a Melbourne-based spokeswoman for BHP, declined to comment on individual contracts with companies. Calls to Pan Pacific spokesman Kouichi Shirai’s mobile phone and office were not answered.

Pan Pacific said yesterday it plans to restart its Saganoseki smelter in February, about a month after the fire on Jan. 7 damaged an electric power substation at the site in Oita prefecture, southern Japan.

Increased TC/RC’s

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.

“Now the focus is on what other Japanese smelters will do,” Murata said. Japanese companies have been pursuing increased annual TC/RCs with the stronger yen against the dollar and slowing demand for refined metal, he said.

Toshiaki Yamada, a spokesman at Mitsubishi Materials Corp. (5711), Japan’s third-largest smelter, said negotiations with BHP had ended, without elaborating.

Chinese Smelters

BHP offered Chinese smelters annual copper ore treatment fees of $60 a ton and 6 cents a pound for refining, two smelter executives with knowledge of the discussions said Jan. 4, asking not to be identified as the talks were private.

The processing fees were lower than the $63.5 a ton and 6.35 cents a pound settled between Jiangxi Copper Co., China’s largest producer, and Freeport-McMoRan Copper & Gold Inc. in November. Pan Pacific also set the 2012 fee at the same level with Freeport in early December.

Pan Pacific said in May that it agreed with BHP to $90 and 9 cents for July 1 to Dec. 31, up from $70 and 7 cents in the first half. The company is 66 percent owned by JX Nippon Mining & Metals Co. (5720), a unit of JX Holdings Inc. (5020) Mitsui Mining & Smelting Co. holds the remainder.

Copper for three-month delivery on the London Metal Exchange rose 1.9 percent to $8,245 a ton at 4:40 p.m. Tokyo time after touching $8,248, the highest level since Oct. 28. BHP owns Escondida, the world’s biggest copper mine, while Freeport runs the Grasberg mine in Indonesia.

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: Richard Dobson at rdobson4@bloomberg.net

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