Pan Pacific Copper Fails to Agree on 2014 Fees With BHP

Pan Pacific Copper Co., Japan’s largest producer of the metal, said it will not buy concentrate from BHP Billiton Ltd. this year under an annual contract after failing to agree on processing fees.

Pan Pacific ended on Jan. 10 its negotiations with the miner for an annual supply contract, Atsushige Higashimori, a spokesman at the Tokyo-based smelter, said in an e-mail late yesterday. Fiona Hadley, a Melbourne-based spokeswoman for BHP, today declined to comment on individual talks with companies.

The breakdown came at a time when copper mine output growth is forecast by Barclays Plc to remain strong this year. Pan Pacific had sought a 31 percent gain in fees from last year. Copper in London fell 1.3 percent this month amid projections for a global surplus, extending a 7.2 percent slump in 2013.

“We plan to secure raw material from other mining companies,” Higashimori said by phone today, declining to give data on how much the firm purchases from BHP each year. It can produce 610,000 metric tons a year of refined metal, he said.

The Japanese company had asked for $92 a ton to treat concentrate and 9.2 cents a pound to refine the metal, the same level as the 2014 fees it agreed on in November with Freeport-McMoRan Copper & Gold Inc. The 2013 rates that Pan Pacific and Freeport agreed on were $70 a ton and 7 cents a pound. An increase in fees, or treatment and refining charges known as TC/RCs, boosts smelters’ revenues.

The contract for delivery in three months on the London Metal Exchange fell 0.2 percent to $7,265 a ton at 11:57 a.m. in Tokyo. The industrial metal, used in pipes and wires, slipped into a bear market in April.

Mine Production

Global mine production growth should stay strong in 2014 as output from projects including Grasberg in Indonesia and Mina Ministro Hales and Caserones in Chile increases, Barclays said in a Jan. 13 report. The bank expects refined output to rise 6 percent to 22.3 million tons, with the market swinging into a surplus of 167,000 tons. BHP owns Escondida, the world’s biggest copper mine, in Chile.

Copper-mine production capacity may climb about 8 percent a year on average through 2017, outpacing a 2.5 percent gain in refined output, the International Copper Study Group estimates. Stockpiles monitored by exchanges in London, Shanghai and New York are the lowest since October 2012.

Jiangxi Copper Co., China’s largest smelter of the metal, agreed in December with BHP to a 41 percent gain at $99 a ton and 9.9 cents a pound in fees for the first half of 2014. Masashi Takahashi, a spokesman at Sumitomo Metal Mining Co., Japan’s second-largest smelter, and Takuya Kitamura, a spokesman at Mitsubishi Materials Corp., declined to comment on their talks with miners for annual fees.

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

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