Codelco Seen Raising China Copper Premium to Nine-Year High

Codelco, the world’s biggest copper producer, is poised to raise the fee it charges Chinese buyers to the highest since 2005 as demand increases in the world’s biggest user of the metal, a survey shows.

The surcharge added to the price of copper for immediate delivery on the London Metal Exchange may climb 38 percent to $135 per metric ton in 2014 from $98 this year, according to the median of 14 estimates from company executives, traders and analysts contacted by Bloomberg this week. Codelco has already increased the premium it charges European buyers by 32 percent.

Higher fees would shore up profit at the Chilean miner that earns more than 90 percent of its revenue from the metal and faces an 8.8 percent slump in futures prices in London this year. China’s copper imports surged to a 19-month high in September as economic growth accelerated and demand is set to increase 6.5 percent in 2014, Barclays Plc estimates.

“The premium is sure to go up,” said Li Chunlan, an analyst in Beijing for London-based researcher CRU. Any potential easing in demand for copper for Chinese industry and construction would be offset by imports of the metal to use as collateral to get funding for other business ventures, said Li.

The probable higher fees add to signs of strength in the Chinese economy after concern of a slowdown earlier this year when gross domestic product growth slowed in the first and second quarters. The odds of a credit crisis are decreasing on expectations a Communist Party summit in November will take steps to scale back local-government debt and shadow banking, a Bloomberg survey indicated.

LME Prices

Officials at Santiago-based Codelco declined to comment on the fees. China accounts for about a third of the company’s annual sales.

The premium is added to LME spot prices to cover costs including shipping and insurance. It was as high as $138 in 2005, according to CRU.

The metal for delivery in January on the Shanghai Futures Exchange fell 0.6 percent to 51,760 yuan ($8,494) a ton at 2:37 p.m. local time while the contract for delivery in three months on the LME fell 0.8 percent to $7,232.50 a ton.

The price Codelco will charge European buyers next year has been raised to $112 a metric ton, according to two people with direct knowledge of the matter. The new fee is the highest since 2008, according to data from CRU.

Chinese users may sign more annual contracts with Codelco and other miners and make fewer purchases from the spot market due to the risk of volatility in prices, CRU’s Li said.

Mine Disruptions

Mine disruptions may return to near the nine-year average of 990,000 tons in 2014 and 2015, from an estimated 460,000 tons this year, Deutsche Bank said Oct. 16.

The premium for imported copper under spot contracts, an indication of the metal’s availability, was at $195 per ton, compared with a record $210 in early August, according to data provided by SMM Information & Technology Co.

Pan Pacific Copper Co., Japan’s biggest producer, increased its premium for China by 45 percent for 2014 to $123, reflecting higher spot surcharges.

China’s refined copper consumption may increase 6.5 percent to about 8.7 million tons in 2014 while imports remain relatively stable compared with recent years, said Yang Changhua, a researcher with Beijing Antaike Information Development Co. There’s likely to be a deficit of about 1.9 million tons in China next year, Yang said.

The Asian nation will keep leading the world’s consumption growth in 2013 at a rate of 6.2 percent, Codelco said at an investor presentation this month.

While China is the world’s largest copper producing nation, it doesn’t produce enough to meet its own needs.

Inventories in Asia tracked by the LME and the Shanghai Futures Exchange slumped 31 percent from an all-time high reached June 24.

— With assistance by Alfred Cang

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