BHP Billiton May Win 33% Cut in Copper Material Fees

TOKYO, Nov. 12 -- BHP Billiton Ltd., the world's largest mining company, may win a 33 percent cut in copper processing fees for 2010 on raw material supply shortages, said analysts Atsushi Yamaguchi and Peter Richardson.

    The company may pay $50 a metric ton and 5 cents a pound in so-called treatment and refining charges next year, Yamaguchi, a Tokyo-based analyst at UBS AG, said today by phone. That's down from $75 a ton for smelting and 7.5 cents a pound for refining for 2009, he said. Freeport-McMoRan Copper & Gold Inc. may also win the lower fees, according to the analysts.

    Copper in London has more than doubled this year as China's imports rose to a record. The fees for producing metal from semi-processed ore known as concentrate drop when there is a shortage as smelters compete for supplies. The global deficit of the raw material may rise five-fold to 1 million tons next year, Christine Meilton, an analyst at London-based research company CRU, said Nov. 9.

    "Negotiations will be tough" for Japanese smelters, which will meet Freeport, the world's biggest publicly-traded copper producer, from today in Bangkok, Yamaguchi said. BHP Billiton plans to meet the smelters next week in Tokyo, he said. The Japanese companies are the top buyers of concentrate after China.

    Melbourne-based BHP Billiton spokeswoman Kelly Quirke declined to comment. William Collier, Phoenix, Arizona-based Freeport's spokesman, said in an e-mail that the company didn't comment on fee negotiations.

    Copper Prices

    Copper for delivery in three months gained 1.8 percent to $6,645 a ton on the London Metal Exchange at 6:16 p.m. Tokyo time. The metal, used in pipes, tubes and cables, reached $6,732 on Oct. 26, the highest level since Sept. 29 last year.

    Treatment fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper contained in the concentrate. The fees are deducted from the price paid by smelters to miners for the concentrate.

    "Given current foreign exchange rate trends, copper prices and sulfuric acid prices, around 13 cents a pound may be the level at which the Japanese operators can remain profitable," Yamaguchi said in a note on Nov. 6. The 13-cents-per-pound level is equivalent to $55 a ton and 5.5 cents a pound, he said.

    CRU forecasts a deficit of copper in concentrate this year of 200,000 tons against a deficit of 100,000 tons last year.

    "We are looking at a shortfall of around 1 million tons next year," Meilton said. "New demand is just so large, and our forecast assumes that most smelters will go back to normal production."

    Fee Forecasts

    Morgan Stanley forecast the copper treatment and refining charges at $50 a ton and 5 cents a pound, Richardson, Melbourne- based chief metals economist at the company, said in an e-mailed note. Kim Gyung Jung, an analyst with Samsung Securities Co. in Seoul, also projects the fees at $50 a ton and 5 cents a pound.

    That would be the same level that BHP and the Japanese companies agreed for mid-year contracts started in July, which typically cover less than 20 percent of the smelters' needs, according to Yamaguchi.

    CRU's Meilton on Nov. 9 forecast the fees at $55 a ton and 5.5 cents a pound.

    Japan's largest smelter is Pan Pacific Copper Co., owned 66 percent by Nippon Mining & Metals Co., a unit of Nippon Mining Holdings Inc., and 34 percent by Mitsui Mining & Smelting Co. Sumitomo Metal Mining Co. ranks second ahead of Mitsubishi Materials Corp. Producers including Pan Pacific cut production this year as the global recession reduced demand.

    Sulfuric acid, a byproduct of copper production, dropped to less than $10 a ton in the six months ended Sept. 30, from $135 a ton a year earlier, London-based Vedanta Resources Plc, the largest copper producer in India, said Nov. 5.

    The Japanese currency touched 87.13 per dollar in January, the strongest since July 1995, eroding the value of sales made in dollars. The yen traded at 89.82 at 6:18 p.m. in Tokyo.

    (Source: Bloomberg)