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Codelco to Increase Japan Copper Fee by 31% on Demand

iconNov 16, 2010 10:31
Source:SMM

Nov 15 (Bloomberg) -- Codelco, the world’s biggest copper producer, will increase the additional charge on cathode sales to Japan next year by 31 percent, the second straight annual gain, as demand climbs in Asia.

The premium for grade A metal will rise to $98 a metric ton from $75 this year, said three industry officials familiar with the matter, asking not to be identified as the terms are private. The fee is added to the price of copper for immediate delivery on the London Metal Exchange to cover shipping and insurance.

Copper, used in pipes and wires, gained 16 percent this year and reached a record $8,966 a ton in London on Nov. 11 as demand led by China outpaced supply and as investors bought commodities to protect their assets. The move by Codelco sets a benchmark for other producers and may spur Freeport-McMoRan Copper & Gold Inc., Pan Pacific Copper Co., Sumitomo Metal Mining Co. and Mitsubishi Materials Corp. to follow suit.

"The premium increase reflects brisk regional demand for copper led by China amid tight supply,” said Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. "Demand in Asia appears stronger than other regions.”

The Chilean company will raise the fee to $98 a ton for South Korea, the second-largest buyer in Asia, from $74 this year, three industry executives with direct knowledge of the matter said on Nov. 11. Codelco will also increase the fee in Europe to $98 a ton from $80 this year, said a person with direct knowledge of the matter on Oct. 12.

China Increase

"Given the premium increase in Japan and South Korea, the charge for China will surpass the $100 level and may reach as high as about $110,” Daiwa’s Murata said. The premium for China was $85 a ton in 2010.

Copper will lead a rally in base metals into 2011 as increased consumption cuts stockpiles and weaker currencies spur investment demand for commodities, according to Morgan Stanley.

The metal has the "potential to have a structural shortage of supply for longer than any of the other metals,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said Nov. 9. There’s been underinvestment in mine capacity over the past decade and a "significant problem” of declining ore quality, he said.

China’s inflation accelerated to 4.4 percent in October, the fastest pace in two years. On Oct. 12, Codelco Chief Executive Officer Diego Hernandez said he expects a "tighter” copper market next year because of continued demand from China and a lack of new supply.

Three-month delivery copper in London fell 1.1 percent to $8,521.75 a ton at 4:35 p.m. Tokyo time. Copper stockpiles in LME warehouses have fallen 28 percent this year and are heading for their first annual drop in six years. Inventories stood at 362,775 tons as of Nov. 12, the lowest level since October 2009.

Refined-copper output will lag behind demand by 435,000 tons next year, the first shortage since 2007, according to the International Copper Study Group.

 
 

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