BHP Cuts Mid-Year Copper Fees for Japanese Smelters

SYDNEY, July 22 -- BHP Billiton Ltd., the world's biggest mining company, won a reduction in copper processing fees from the three largest Japanese smelters in mid-year supply contracts.

    "The fees are lower than the calendar 2009 ones, but higher than last year's mid-year fees," Nobuyuki Suzuki, spokesman for Tokyo-based Mitsubishi Materials Corp., said today by phone, declining to give further price details. Pan Pacific Copper Co., Japan's largest smelter of the metal, also reached an agreement on the fees, spokesman Kan Komatsuzaki said.

    Processing fees for immediate delivery have dropped this year because of lower ore grades and declining mine output cut raw material supplies. The so-called treatment and refining charges, or TC/RCs, usually drop when there is a shortage of raw material and smelters have to compete for deliveries.

    "Brisk raw-material purchases by China have caused tighter supplies" amid lower global mine production, said Atsushi Yamaguchi, a Tokyo-based analyst at UBS AG. Although the volumes involved in the mid-year contracts are small, they're an important gauge for calendar 2010 contract talks, he said.

    Miners and smelters set annual processing fees twice a year, firstly for calendar contracts starting from Jan. 1 and then for contracts starting July 1. Japanese smelters cover about 10 to 20 percent of their total annual volumes in the mid- year deals.

    Singapore Meetings

    Executives from Melbourne-based BHP and Japanese smelters met last week in Singapore to negotiate the fees for contracts starting July 1, said Suzuki and Komatsuzaki. Peter Ogden, a spokesman for Melbourne-based BHP, declined to comment.

    Sumitomo Metal Mining Co., Japan's second-largest copper smelter, also reached a deal with BHP, spokesman Hiromasa Ooba said. "We settled the deal at the end of last week," said Ooba, declining to give further price details.

    BHP had proposed about $48.50 a metric ton for smelting and 4.85 cents a pound for refining, Masanori Okada, president at Nippon Mining & Metals Co., said July 15. BHP's offer was below the level required to make profits, Okada said.

    That compared with $75 a ton and 7.5 cents for the calendar 2009 fees and last year's mid-year contracts at $42.50 a ton and 4.25 cents, according to data compiled by the Japan Mining Industry Association.

    BHP'S Proposal

    "It's highly possible that the mid-year deals have been made close to BHP's proposal," said Takashi Murata, an analyst at Daiwa Institute of Research in Tokyo. Japanese smelters are facing tougher business environments because of the strengthening yen and a sharp drop in prices for sulfuric acid, a byproduct of copper smelting, he said.

    "Unlike last year, sulfuric acid stockpiles are a headache for smelters, as they cannot sell out because of extremely lower prices amid slowing demand," he said.

    The dollar was at 94.35 yen by 1:30 p.m. London time, down from just below 110 yen a year earlier. A strengthening yen reduces Japanese smelters' revenue as they charge the processing fees in a dollar basis to mining companies.

    Pan Pacific Copper is 66 percent owned by Nippon Mining & Metals Co., a unit of Nippon Mining Holdings Inc.Mitsui Mining & Smelting Co. holds the remaining 34 percent.

    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. LME copper for delivery in three months was up 1.5 percent at $5,430 a ton at 1:30 p.m. local time. Copper has gained 77 percent this year.

    Production at Escondida, the world's largest copper mine, will be 30 percent lower this year because of repairs to a mill, Diego Hernandez, president of BHP Billiton's base metals division, said June 8. Escondida will shut a faulty mill for 45 days during July and August, Hernandez said.

    (Source: Bloomberg)