UPDATE 2-Pan Pacific Copper to Cut Output Further in H2

TOKYO, Sept 15 (Reuters) –

Pan Pacific Copper Co, part of JX Holdings Inc (5020.T) and Japan's top copper smelter, said it plans to cut output further in the October-March period, pressured by plunging processing fees.

The company, which has been curbing output by 7 percent since January 2009, plans to produce 13 percent below capacity in the second half of the financial year to March 2011, a company spokesman said.

"We expect the market environment to deteriorate further in the second half as processing fees will likely fall, while copper scrap prices are rising," said the spokesman.

Pan Pacific has been increasing its purchases of copper scrap to make up for reduced purchases of expensive copper ore, a major input.

Pan Pacific produces about 620,000 tonnes of copper annually, so a 13 percent cut below full capacity would make second half output an estimated 270,000 tonnes.

Second-ranked Sumitomo Metal Mining Co Ltd (5713.T) is for now keeping its output plan of 202,000 tonnes for the second half announced in April, a company spokesman said.

Third-largest Mitsubishi Materials Corp (5711.T) is planning regular maintenance at two plants in the second half -- at its Naoshima plant for about 18 days in February 2011 and at the Onahama plant, of which it owns 50 percent, for about 14 days from the end of October, a spokesman said.

"The regular maintenance is likely to weigh slightly on output for the second half," another Mitsubishi Materials spokesman said.
Copper smelters will announce their production plans for the second half in October.

Pan Pacific Copper, 66 percent owned by JX Nippon Mining & Metals of JX Holdings, and other Japanese smelters have been suffering from plunging copper processing fees.

Analysts and traders have said the fees, known as the treatment charge and refining charge (TC/RC) and representing smelter profit margins, likely hit historic lows at midyear talks concluded in July.

Mine output is likely to continue lagging smelter capacity, forcing smelters to accept falling TC/RCs which in recent years have sharply cut smelters' profit margins around the globe, as they compete for limited raw materials to keep their furnaces running.

Consumption of copper, used in a wide range of goods including utensils, construction materials and computer chips, is often seen as a gauge of economic activity.

Japan's copper output has been slowly recovering as strong exports to China offset sluggish demand from the construction sector at home, a major consumer of the metal.

Copper prices CMCU3 hit a four-month high in early September but have eased due to worries of global growth and demand and talk of more quantitative easing in the United States.