HONG KONG Japanese copper smelters have proposed a 45 percent rise in the premiums they want to charge Chinese end-users for term deliveries next year, reflecting strong spot premiums and expectations of rising demand and tight supplies.
The buyers of refined copper have been asked to pay premiums of around $123 per tonne for 2014 term deliveries against premiums of around $85 negotiated for 2013, said sources who are purchasers of the metal in China. The premiums are usually finalized after negotiations.
The proposed premiums, which are paid in addition to the London Metal Exchange copper prices, are lower than some Chinese buyers had expected and are expected to be accepted by them.
They could result in Chile's Codelco, the world's top copper producer, asking for $130-$150 premiums from the Chinese buyers, according to a trader.
"(The Japanese) have asked us to pay $123 term premium for 2014," a purchasing manager at a large end-user of refined copper in China said, who received the offer late on Tuesday.
He added that the Japanese expected copper demand in Japan and some developed countries to rise and supplies in the global copper market to stay tight next year, which encouraged them to ask for the higher term premium for 2014.
A senior official at Japan's biggest copper smelter, Pan Pacific Copper, a unit of JX Holdings Inc (5020.T), said the company had offered the $123 premium to China this week and the rise was to reflect current market conditions.
The proposed premium is lower than current spot premiums in Shanghai of about $180-$190 per tonne.
Spot premiums for imported refined copper in Shanghai hit four-year highs of about $200 per tonne in late June and August after onshore copper supplies fell and importers boosted orders for spot metal. In August 2012, spot premiums were just $50-$80.
"Premium of $123 should be well received by the Chinese since spot premiums are high currently," a Shanghai-based trader at an international trading firm said, adding that the Japanese had been expected to ask $140-$150 premium for 2014.
"Given the Japanese offer, Codelco may ask term premium of $130-$150 for 2014," the trader added.
Codelco term premiums typically are used as the benchmark in Asia. The firm and Chinese buyers agreed 2013 premiums of about $98 per tonne in November last year.
The purchasing manager said his firm was considering increasing term orders for Japanese copper imports because its production would rise next year.
(Additional reporting by Yuka Obayashi in TOKYO; Editing by Muralikumar Anantharaman)