HONG KONG, May 28 (Reuters) - Chinese copper smelters are turning to Rio Tinto's Oyu Tolgoi mine in Mongolia for concentrates in the spot market as a regional oversupply situation in the raw material is easing after a key Indonesian mine halted operations this month.
The supply from Oyu Tolgoi, expected to begin in June, will be vital to copper output in the world's top producer and consumer of the metal since Chinese smelters are already facing a shortage of alternative raw material scrap and several have even cut production.
China had boosted purchases of spot concentrate in the Asia market to benefit from a regional oversupply after India closed its top smelter run by Sterlite Industries around end-March over environmental concerns. But the extra supply was drying up now, traders said.
"Trading houses are no longer desperate to sell," said a trader at an international trading firm, who declined to be named because he was not authorised to talk to the media.
Operations at Freeport McMoRan Copper & Gold Inc's huge Grasberg mine in Indonesia, the world's second-biggest copper mine, were suspended on May 15 after a tunnel collapse that killed 28 people. It is not clear when operations at the mine will restart.
Reflecting an easing of the oversupply, treatment and refining charges for spot copper concentrate were up only marginally recently compared with a 25 percent jump posted in April from March. They were at $76.5 per tonne and 7.65 cents per pound for clean, standard concentrate to China in mid-May compared with $75 and 7.5 cents in April.
The charges are paid by concentrate sellers to smelters to convert concentrate into refined metal and their movements are directly co-related to supply.
Top producer Jiangxi Copper Company Ltd and smaller rivals have already cut production in the past month because of scrap supply shortage.
China's imports of copper ores and concentrate rose 37 percent on the year to 3.06 million tonnes in the first four months of the year of which 23,074 tonnes came from Indonesia, customs data showed.
Sources at Chinese smelters said the Grasberg operation suspension was unlikely to affect term shipments to China.
The huge Oyu Tolgoi mine is expected to start shipments of copper concentrates to China around the end of June, said a source at a Chinese smelter, which will receive term shipments of Oyu Tolgoi concentrates.
At full tilt the mine is expected to produce around 450,000 tonnes of copper and 330,000 ounces of gold a year.
Earlier this month Rio Tinto's Chief Executive Sam Walsh said he expected approvals from the Mongolian government within two weeks to transport copper out of the Oyu Tolgoi mine and copper concentrate was being stockpiled at the mine awaiting the approvals.
"It's still set for next month. They've been doing tests and preparation but first shipment hasn't been done yet," a source familiar with the approval process, said.
Logistics for transporting concentrates to China have been completed mostly, said two sources at separate smelters, who attended a presentation by Rio Tinto earlier this month.
Copper concentrates to be shipped to China will be examined by officials of China's quarantine authority at the mine and will be packed in bags, with three tonnes per bag. The bagged concentrates will be transported to a bonded warehouse in the Chinese border for deliveries to buyers, the sources said.
Rio Tinto is believed to have signed term contracts with three Chinese firms and at least one international trading house for providing Oyu Tolgoi concentrates, sources at Chinese smelters said.