UPDATE 1-Japan's Pan Pacific fails to reach deal with BHP on copper charges

Tue Jan 14, 2014 8:03pm EST

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TOKYO Jan 15 (Reuters) - Pan Pacific Copper, Japan's biggest smelter, said on Wednesday it would not sign an annual contract for copper processing fees with BHP Billiton for 2014, after failing to strike an agreement on terms.

The failure to reach a deal reflects expectations of a surplus in the copper market this year after booming investment boosted new mine production. Higher fees encourage smelters to make more metal, which is seen pressuring copper prices later this year.

A Pan Pacific spokesman said its end-year treatment and refining charges (TC/RC) negotiation with BHP Billiton "took a holiday on Jan. 10". This means that an agreement would not be reached this year.

"We have been asking for $92/9.2c ($92 per tonne and 9.2 cents per pound), which we considered as our benchmark, in this negotiation," a company spokesman said in an emailed statement. "But we feel sorry that our positions could not match."

In recent years, BHP has pushed for better terms from smelters than those won by its rivals, arguing its higher purity concentrate deserves lower processing fees, given smelter's costs are based on volume of throughput rather than copper contained.

The miner agreed on a hefty 41 percent rise in fees with Chinese smelters of $99 per tonne and 9.9 cents per pound for the first half.

Pan Pacific may buy more from the spot market this year. Spot treatment and refining charges are sitting around $110 per tonne and 11 cents per pound in a quiet market, a trader said.

Pan Pacific won its highest copper processing fees in eight years in a deal with U.S. miner Freeport-McMoRan Copper & Gold Inc in November, with TC/RCs set at $92 per tonne and 9.2 cents per pound respectively.

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