UPDATE 1-BHP to pay 41 pct more to China copper smelters in H1 charges-sources

Mon Dec 9, 2013 6:26am EST

Related Topics

* H1 TC/RCs settled at $99 per tonne and 9.9 cents per pound

* BHP's TC/RC higher than 2014 benchmark for full-year

* Smelters in strong negotiating position as concentrate supply rises

By Polly Yam

HONG KONG, Dec 9 (Reuters) - Miner BHP Billiton has agreed to pay a 41 percent rise in copper processing fees to China's large smelters for the first half of 2014, sources said, showing smelters are in a strong negotiating position as supply of concentrates rises.

The smelters and Anglo-Australian BHP have agreed to treatment and refining charges (TC/RC) of $99 per tonne and 9.9 cents per pound for term concentrate shipments in January to June 2014, two sources at smelters said on Monday.

That compares to the $70 and 7 cents the two sides negotiated for shipments in July to December 2013 and is more than the 2014 benchmark rate for full-year shipments.

The rise in the charges reflects an expected supply increase in the global copper concentrate market next year. More concentrate supply would encourage smelters to make more metal, which could pressure copper prices.

The charges are higher than the 2014 benchmark of $92 and 9.2 cents agreed between Chinese smelters and other miners such as Freeport-McMoRan Copper & Gold Inc.

But they are lower than the spot TC/RC of about $130 and 13 cents for clean, standard concentrates to China.

Global miners pay TC/RC to smelters to convert concentrate into refined metal, with the charges deducted from the sale price, based on London Metal Exchange copper prices . Higher charges are typically seen when concentrate supply rises.

"We have settled with BHP at $99 and 9.9 cents for half-year shipments," said a source at a large copper smelter who had direct knowledge of the deal.

A manager at another large smelter said the firm had signed the same TC/RC with BHP and would continue to negotiate with the miner for full-year shipments.

BHP had not given a new figure for full-year shipments to China after the smelters there rejected the miner's offer of $80 and 8 cents last month, he added.

"We don't comment on pricing," a BHP media relations manager in Australia said in an email to Reuters.

SUPPLY RISE

The deals with BHP were reflective of smelters regaining some negotiating power, said Michael Widmer, analyst at Bank of America Merrill Lynch.

"It shows the current environment of having more concentrate supply coming through generally, but at the same time the smelters did not get the maximum that they wanted."

Chinese smelters had planned to ask global miners to pay TC/RCs of about $105 and 10.5 cents for term shipments in 2014.

A source at a miner said the jump between the initial offer by BHP to the Chinese smelters and the agreed TC/RC suggested the miner recognized its first offer might have been a bit ambitious.

"I was surprised BHP is giving $99 and 9.9 cents. The strong charges reflect that miners are afraid they can't sell all production next year," a trader at a small Western miner said.

He added that TC/RCs for term shipments in July to December 2014 could be higher compared to the $99 and 9.9 cents for the first half as new projects were expected to come onstream and given that spot TC/RCs had risen more than 10 percent in the past month.

A deal for 30,000 tonnes of clean, standard African concentrate was sold at TC/RC of $130 and 13 cents last week to China, the trader said.

The bulk of the spot deals had changed hands at TC/RCs of about $115-$120 this month, compared to about $113-$115 in October and November, the sources at smelters said.

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