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Codelco's European premium falls $5

Keywords: Tags  Codelco, European copper premium, benchmark premium, BHP Billiton, Aurubis, mating season, Peter Willbrandt, copper

LONDON — Corporación Nacional del Cobre de Chile (Codelco) has lowered its benchmark European copper premium to $85 per tonne, a $5 cut from last year’s terms, sources told AMM sister publication Metal Bulletin.

The lower premium comes as copper consumers experience weaker physical demand in Europe and a lack of visibility in forward orders further down the supply chain, sources said.

Codelco’s 2013 price came soon after Hamburg, Germany-based Aurubis AG offered its European customers a rollover of its $86-per-tonne ex-works premium in the run-up to mating season negotiations during London Metal Exchange week.

Aurubis had cut its premium by $4 a tonne in June and has seen no turnaround in consumer demand since then, chief executive officer Peter Willbrandt recently told Metal Bulletin.

But while copper producers have made concessions to hard-pressed consumers, incentives offered by warehouse owners have created a safety net under premiums, sources said.

"It’s better than an increase, obviously, but given the problems people have building their budget and order books for next year, the premium really should be lower," one European consumer said. "But if you look at the incentives offered by warehouses, you can see why premiums haven’t fallen more. In my mind, it’s a clear distortion of the market."

London-based BHP Billiton Plc has offered customers monthly, quarterly and annual fixed contracts linked to prevailing spot premiums this year, sources outside the company said.

"There’s a rift between producers who want long-term deals and consumers who want short-term," a physical trader said. "BHP is offering consumers what they want."

"It reduces risk on premium volatility, but you’re also taking less return on the premium because you’ll be exposed to higher numbers if the market bounces back," a source at a Chinese smelter said. "It depends on your approach."

Codelco executives are now set to travel to Asia to discuss a benchmark premium with consumers there. Last year, it secured a $110 premium, but there are broad expectations that the 2013 number will be lower, responding to the weaker spot market.

The Santiago, Chile-based miner could give up $5 to $10 on the Asian benchmark, the Chinese smelter source predicted, while others argued that it needs to fall more substantially.

"In Europe, the Codelco benchmark does respond to spot prices, but the numbers that have been thrown around for Asia are a bit of a farce," the trader said.

"I think it will settle at $95, but that’s not a number that’s actually trading. If they actually want to book any volume, they should be taking $75," he added.

Although the benchmark has been settled in Europe, Codelco has yet to discuss finer details such as volumes, the consumer said.

Codelco and BHP Billiton declined to comment.

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