China Said to Demand 74% Copper Fee Increase From BHP

Smelters in China, the world's biggest copper consumer, asked BHP Billiton Ltd. and other mining companies to pay 74 percent more to process copper next year, two industry officials involved with the negotiations said.

BHP, the world's largest mining company, offered to raise fees by 12 percent last week, said the people who asked not to be identified because talks are continuing. BHP spokeswoman Samantha Evans declined to comment when contacted in Melbourne.

The global credit crunch and economic slowdown has led to an oversupply of ore and curbed the ability of mining companies to keep stockpiles, forcing them to offer the first increase in fees since 2006. Higher fees, known as TC/RCs, would revive sagging profits at Tongling Nonferrous Metals Group Co. and other Chinese smelters.

"Smelters have more bargaining power now," said Yang Changhua, analyst at Beijing Antaike Information Development Co. If agreed, the fees will be the highest since 2006, he said.

Jiangxi Copper Co., China's second-biggest smelter by 2007 output, rose 5.5 percent to HK$5.56 in Hong Kong trading. Tongling Nonferrous rose 2.5 percent to 8.16 yuan in Shenzhen trading. Benchmark indexes in China and Hong Kong dropped as much as 2.6 percent.

Miners including BHP Billiton are talking with smelters in China, Japan and India to renew calendar-year contracts. The fees in China for 2008 were cut by 21 percent to $47.2 a metric ton for smelting ore and 4.72 cents a pound for refining, when there was a shortage of ore.

Capital Shortage

Mining companies are short of capital because of the global credit crisis and need to sell their products to get cash, one of the industry officials said. China will press mining companies to pay even more in the second round of talks, the two officials said.

Copper futures in London have plunged 64 percent from the July record of $8,940 a ton on concern the slowdown will reduce demand for industrial metals. Mining companies may cut output further as prices decline, reducing oversupply in the markets, and strengthening their bargaining powers, said Qu Yi, a Beijing-based analyst at China CBI Co.

"I am not very optimistic that Chinese smelters can get that high an increase," Qu said.

Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, this month cut its output targets, and had said it may further reduce production.

'Reasonable Level'

Fees of "$65/6.5 cents might be a reasonable level for both sides," China CBI's Qu said. Still, some smelters have said they can only break even with fees above $70/7.0, she said.

Jiangxi Copper posted a 27 percent decline for its third quarter profit and Yunnan Copper Industry Co. suffered a 89 percent drop in profit in the same period, because of falling fees and the lower price of sulphuric acid, a smelting byproduct.

Treatment charges are expressed in dollars per ton of concentrate received and refining fees in dollars per pound of copper contained in the concentrate. The fees are deducted from the price paid by the smelter to the mining company for the concentrate.

About half of China’s concentrate imports come from the spot market, with fees for the rest agreed in calendar-year or mid-year negotiations, according to Macquarie Bank Ltd.

Spot charges for the latest shipment of overseas ore have risen to $88/8.8 cents, said one of the industry official, indicating ample supplies of copper concentrate.

information from www.bloomberg.com