Chinese copper smelters lower expectations on 2013 term TC/RC

Tue Dec 4, 2012 3:11pm IST

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* BHP initial offer at $60/6 cents; Chinese bids around $80/8 cents

* No further talks after recent TC/RC talks -smelters

* May settle at $65-$75 and 6.5-7.5 cents -buyer, seller sources

By Polly Yam and Melanie Burton

HONG KONG/SINGAPORE, Dec 4 (Reuters) - China's copper smelters are lowering expectations for 2013 term treatment and refining charges from global miners after getting a flat offer from BHP Billiton , for concentrates from the world's top mine, industry sources said on Tuesday.

The smelters have yet to strike deals on 2013 treatment and refining charges (TC/RC) after meetings with global miner BHP Billiton , the majority owner of Escondida in Chile, and Freeport-McMoRan Copper & Gold in China and London in recent weeks.

Smelters are seen to have a stronger upper hand in deal-making this year, as improving mine supply, matched with a global slowdown in economic growth, is set to swing the world market for refined copper into a small surplus next year.

Global miners pay TC/RC to smelters to convert concentrate into refined metal and the charges are deducted from the sale price based on LME copper prices. Higher charges are typically seen when concentrate supply rises.

In October, Chinese smelters were seeking an increase of about a quarter in 2013 term TC/RCs from this year to $80 a tonne and 8 cents a pound.

Now they are eyeing $70 to $75 and 7 to 7.5 cents after BHP offered $60 and 6 cents in recent meetings and Freeport did not put a figure on the table.

"Now, we think $70 to $75 is more reasonable," said a manager at a large copper smelter in China, who did not want to be named as he was not authorised to talk to media.

The manager has lowered his expectations even though Chinese smelters had still bid around $80 and 8 cents for 2013 term TC/RC in recent meetings with BHP.

China's smelters received term 2012 TC/RC at $60 and 6 cents from BHP for Escondida concentrates and $63.5 and 6.35 cents from Freeport, both seen as benchmarks in Asia.

"Japanese smelters are asking high TC/RCs...they may accept $75 or above," a manager at another large smelter in China said.

Smelters' higher requirements are encouraged by spot imports, which traded in a range from the mid-$70s and 7 cents to near $80 and 8 cents TC/RC for clean, standard concentrates to China, up around 55 percent from August.

TC/RC are a profit indicator for copper smelters. Higher TC/RC point to a rise in supply of refined metal because smelters are willing to produce more.

MINERS

But global miners were unwilling to accept a hike in charges because new smelting capacity is set to come on stream in China next year, demanding more concentrate imports, the sources said.

China and global miners are most likely to settle 2013 term TC/RC at $65 to $75 and 6.5 cents to 7.5 cents, depending on grades, sources at mining companies and international trading firms said.

BHP, in particular, is pushing for lower TC/RC to reflect its cleaner, high grade copper concentrate, several sources said, a move that may prompt development of two benchmarks.

"The smelters are looking at higher prices in the spot market and talking about higher fees, but that is related to tidying books ahead of year-end. If anything, we're just moving further apart," a source at a mining company said.

"December is a shortened month but I expect deals will be made because miners tend to lose leverage once the new year has begun," he added.

A trader at an international trading house in Europe said, "I think most likely it is something like $68/6.8 cents and I think a deal will get done in the next 2 weeks or so."

The International Wrought Copper Council expects global mine supply to expand 6.5 percent to more than 17.7 million tonnes, in 2013 from 3 percent growth this year.

Jiangxi Copper , China's top producer, estimates global mine production will rise more than one million tonnes next year, Deputy General Manager Wu Yuneng has said.

(Editing by Clarence Fernandez)

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