LONDON BHP Billiton Plc
has offered a rollover in copper concentrate treatment and
refining charges (TCs/RCs) in the first round of annual
negotiations with smelters, sources with knowledge of the
matter told AMM sister publication Metal
Benchmark TCs/RCs for 2012 were
set by Freeport-McMoRan Copper & Gold Inc. and Jiangxi
Copper Corp. at $63.50 per dry tonne/6.35 cents per pound last
November, but BHP refused to settle on Freeports terms.
In January, it settled with Tongling Nonferrous Metals Group
Holdings Co. Ltd. at its target price of $60 per dry tonne/6
cents per pound.
BHP didnt sign annual
contracts with Sumitomo Corp. and Pan Pacific Copper Co. Ltd.
last year after the Japanese smelters refused to accept its
sub-benchmark target price.
"I think they wanted to walk
away from that. They will have sold at fantastic numbers on
spot for any tonnage that they didnt sell on the
benchmark," a concentrates trader told Metal
At the time of last years
negotiations, spot terms were about $20 per dry tonne/2 cents
per pound, and in some instances clean concentrates were sold
with a flat TC/RC.
While BHP wanted a reduction in
2012 benchmark terms that reflected the extreme tightness in
the spot market, Freeport is understood to have taken a softer
line with smelters because the outage at its Grasberg Mine in
Indonesia was a significant cause of that tightness.
One year later, negotiations are
taking place against the backdrop of rising TCs/RCs and a surge
in mine supply that is set to create a substantial surplus in
the concentrates market.
Brownfield and greenfield supply
growth that began in the second half is expected to accelerate
further in 2013, and todays spot market TCs/RCs of $75 to
$80 per dry tonne/7.5 to 8 cents per pound are reflective of
the fact that the concentrates market is shifting into a
significant surplus, sources said.
Despite these altered
conditions, BHP has offered smelters a rollover of $60 per dry
tonne in 2012 terms in the first round of talks, placing a
large wedge between its target price and that of smelters,
which are pushing for $80 per dry tonne.
Its first-round target is also
below consensus expectations of a settlement at $70 per dry
tonne/7 cents per pound, which Freeport is rumored to view as
"Its likely that
well see a TC/RC around ($70 per dry tonne) for 2013, on
a belief that there will be more concentrates available to the
market, and that the expansion in smelting capacity will be
slower than the expansion in concentrates capacity,"
Société Générale SA analyst Robin
Freeport started talks with
Japanese customers in Rome last week, but it has reportedly
been less strident than BHP in making a firm first-round offer,
market observers said.
Further talks will take place
during the Center for Copper and Mining Studies
(Cescos) maiden Asia Copper Week in Shanghai, which
starts Nov. 27, but a settlement might not be seen until after
"Hopefully there will be a
healthy round of discussions in Shanghai and there might be a
settlement immediately afterwards, but Im not that
optimistic. It could take a while longer for miners and
smelters to agree," a concentrates buyer at a large smelter
While a settlement might be some
way off, analysts, traders and miners polled by Metal
Bulletin have effectively ruled out the idea that the
benchmark will settle near $80 per dry tonne/8 cents per pound,
which Aurubis AG has targeted.
"I havent seen that echoed
by other smelters, and it probably represents the high end of
the range of possible outcomes," Bhar said.
Buyers in China said they view a
settlement of $75 per dry tonne/7.5 cents per pound as one that
would be reflective of stronger mine supply.
Sellers will respond with the
reminder that copper miners have a history of underperforming
on their production targets, and add that smelting capacity is
still set to grow in China, as an investment drive by Tongling
announced earlier this month shows.
"Its not like last year,
when it was clear that there werent going to be huge
tonnages available. Everybody knows that wont be the case
in 2013, but both sides have points to make, and negotiations
are going to be tough for both sides," the smelter source
A version of this article was first published by AMM
sister publication Metal Bulletin.