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BHP offers rollover in first round of ‘13 copper concentrate talks

Keywords: Tags  BHP Billiton, Freeport-McMoran Copper & Gold, copper concentrates, benchmark, mine supply, Metal Bulletin, Mark Burton

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 Bulletin.

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 Freeport’s 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 didn’t 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 didn’t sell on the benchmark," a concentrates trader told Metal Bulletin.

At the time of last year’s 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 today’s 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 reasonable.

"It’s likely that we’ll 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 Bhar said.

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’ (Cesco’s) maiden Asia Copper Week in Shanghai, which starts Nov. 27, but a settlement might not be seen until after the conference.

"Hopefully there will be a healthy round of discussions in Shanghai and there might be a settlement immediately afterwards, but I’m not that optimistic. It could take a while longer for miners and smelters to agree," a concentrates buyer at a large smelter said.

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 haven’t 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.

"It’s not like last year, when it was clear that there weren’t going to be huge tonnages available. Everybody knows that won’t 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 said. 

A version of this article was first published by AMM sister publication Metal Bulletin.

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