SMM Cu Survey: Operating Rates Remain Flat MoM at Major Domestic Copper Smelters

SHANGHAI, Dec. 13 (SMM) &ndash; 
Domestic copper smelters have taken preliminary steps in preparation for negotiations to set premiums for 2011 domestic long-term copper contracts.&nbsp; According to market sources, opinions are mixed among smelters towards the 2011 premiums and no consensus among smelters has been reached.&nbsp;
After a survey of domestic smelters, traders, and downstream producers concerning the issue, SMM believes the premiums for 2011 will remain flat at 2010 levels, or around RMB 300/mt, due to the following reasons.
First, Codelco has already announced premiums for copper deliveries to Chinese buyers at USD 115/mt, up as much as 35% from the USD 85/mt premium in 2010.&nbsp; The large increase in premiums is an indication of Codelco&rsquo;s optimistic outlook towards demand in China in 2011, but also signals lower delivery volumes to China in the coming year compared with 2010.&nbsp; In this context, there is little chance premiums for the domestic copper contracts in 2011 will fall significantly.&nbsp; However, the average spot premium and discount as of December 9th was negative RMB 83/mt, compared to an average of positive RMB 169/mt in 2009.&nbsp; This was a reflection of the fact that long-term contract prices for traders or downstream producers who signed the 2010 long-term contracts were higher than spot prices.&nbsp; This contradiction will cause uncertainty during negotiations for the 2011 domestic long-term contracts.&nbsp; Although large spot discounts during 2010 have been closely related to the release of inventories and increases in scrap copper supply, those who signed 2010 long-term contracts were in an unfavorable position. If premiums for 2011 domestic long-term contracts continue to rise, enthusiasm for signing long-term contracts will evaporate quickly.&nbsp;
In this context, SMM believes premiums for 2011 domestic long-term copper contracts will be flat at 2010 levels.&nbsp; Both domestic copper smelters and downstream producers will sign some proportion of long-term contracts since as all sales or purchases on a spot price basis would be too risky for smelters and downstream producers.&nbsp; SMM also believes the proportion of long-term contracts in 2011 will not change significantly from 2010.
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