July 26 (Bloomberg) -- BHP Billiton Ltd., the world's largest mining company, and Sumitomo Metal Mining Co. have settled mid-year processing fees to turn ore into refined metal, a Sumitomo official said.

"We've concluded a deal with BHP" for the contract year that begins July 1, Masashi Takahashi, a spokesman at Japan's second-biggest copper smelter said today by phone. Takahashi declined to comment on fee levels and when the agreement was completed. Melbourne-based BHP Billiton spokeswoman Fiona Martin declined to comment.

The fees are typically negotiated twice a year, with most of the volume handled through the year-end accords. BHP got a 38 percent reduction from at least two Japanese smelters in January, company executives said at the time. They were set at $46.50 a ton and 4.65 cents a pound for the calendar 2010 contracts.

"Concentrate supplies have been tightening following rapid smelting capacity expansion in China," said Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. Still, "the weight of mid-year fees is getting weaker as the amount involved has decreased."

Material Shortage

Processing fees have fallen as smelters expanded faster than supply from mines. Smelters will use 77.5 percent of their capacity on average this year, compared with 86.2 percent five years ago, Morgan Stanley said in a report on June 23. The treatment and refining charges usually drop when there is a shortage of raw material and smelters compete for deliveries.

Pan Pacific Copper Co., Japan's biggest copper smelter, has not reached any deal with mining companies, spokesmen Kan Komatsuzaki said today. Mitsubishi Materials Corp., Japan's third-largest copper smelter, has not reached a deal with BHP, according to company spokesman Hisato Matsubara.

Pan Pacific is 66 percent owned by Nippon Mining & Metals Co., a unit of JX Holdings Inc. Mitsui Mining & Smelting Co. holds the remaining share.

Copper smelters buy concentrate, a semi-processed form of ore used as a feedstock, at a price based on the London Metal Exchange benchmark minus processing fees.

The copper concentrate market will have a shortage for three years after mining companies delayed projects because of lower prices, according to Javier Targhetta,Freeport-McMoRan Copper & Gold Inc's senior vice president of marketing and sales. The shortage will be 500,000 tons to 1 million tons this year, Targhetta said June 6.