5 Min Read
(Repeats story published earlier with no changes to text.)
* Nearly 3.5 mln T of capacity on maintenance in March -Citi
* Low fees could shrink refined copper supplies, underpin prices
* Traders redirecting copper shipments among Asian ports
By Melanie Burton
MELBOURNE, March 8 (Reuters) - Spot processing fees in Asia for copper concentrate have slid to their cheapest in four years as shutdowns at the world's top two mines in Chile and Indonesia grind on longer than anticipated, and it is likely they will drop further in the coming month.
Treatment and refining charges (TC/RCs) for trader-to-smelter deals for shipments to China in March and April have fallen to around $70 a tonne and 7 cents a pound, according to a smelter and a trading source.
That is the weakest since around April 2013, according to metals and mining consultancy CRU, and a steep drop from 2017 term rates of $92.50 a tonne. Smelters typically cut fees to compete for concentrate stocks when supplies are short.
Smelters with low stocks, including in top refined metal maker China as well as India and Japan, are facing narrowing margins as fees slide. Some in China have moved up maintenance to wait out the shortfall, analysts and smelter sources say.
This is set to eat into 2017 refined copper output, pushing the market into deficit as global manufacturing demand revives, and is likely to drive a rally in prices.
"We're a bit stumped about why copper prices haven't shot up and we haven't seen (TC/RCs) much sharper in the past week," said a trader at a global company in Asia.
"My take is they're shuffling the shipments around, diverting some and bringing others forward, and so far there is sufficient concentrate supply," the trader said.
Even at the four-year low for TC/RCs, smelters have some room to move, consultancy CRU said, with the break even point for Chinese smelters at $55 per tonne and for Japan at $45 a tonne. It did not provide figures for other Asian regions.
Citi sees nearly 3.5 million tonnes of annual smelter capacity potentially going into maintenance in March given the tight concentrate market. That will "accelerate a tightening metal market trend via falling copper inventory heading into 2Q-17," analyst David Wilson said in a report.
Citi expects the supply shock to help push refined copper into a deficit in 2017 for the first time in six years, and propel copper prices to nearly $7,000 a tonne before year-end, up 20 percent from $5,800 on Wednesday.
Smelters in India and Japan are expected to be among the first hit by the tighter supplies since they carry relatively low inventories across their financial year-end on March 31 and typically take shipments from the disrupted mines.
"The Indians are starting to feel a little uncomfortable," said one concentrate trader at a Swiss trading house in Asia.
A strike at the world's biggest copper mine - BHP Billiton's Escondida in Chile - is entering its fourth week and has shut concentrate output. Workers at Cerro Verde, one of Peru's largest mines, are also set to start a strike on Friday.
In Indonesia, concentrate exports have been cut off since January from Freeport-McMoRan's Grasberg site, the world's second biggest copper mine.
Indian smelter Vedanta Resources said it did not expect any "operational challenges ... (and had) taken all the necessary steps to ensure no impact from this disruption," although provided no details.
India's other main smelter, Hindalco Industries, did not respond to a request for comment.
Pan Pacific Copper, Japan's biggest copper smelter, is making some adjustments such as on shipping to secure supplies, a spokesman said.
Sumitomo Metal Mining said it had not yet been affected by the disruptions from Escondida or Grasberg because it also gets concentrate from other mines. It also did not include the Indonesian mine in its procurement plans for this year because of the potential for disruption.
"But if the strike continues at Escondida for a long time, we may need to think of other measures," a spokeswoman said, without giving further details.
Reporting by Melanie Burton in MELBOURNE; Additional reporting by Yuka Obayashi in TOKYO, Promit Mukherjee in MUMBAI, and Jane Chung in SEOUL; Editing by Tom Hogue