* Japan's top trading houses seeking more copper
* See copper prices rising as supply dwindles, demand
* Commodities form major part of traders' profits
By Yuko Inoue
TOKYO, Nov 17 Japan's top trading house
are likely to come head-to-head again while competing for copper
mines across the globe, armed with an unprecedented ability to
spend on what they see as a long-term bull market.
The competition is likely to drive up asset prices for
potentially lucrative properties holding the base metal, with
the trading houses jostling for the prize of becoming the top
supplier for the world's fifth biggest copper market and to tap
surging demand in China and other emerging markets.
Japan's six big trading firms, which derive up to 80 percent
of their profit from commodities, plan a combined 2.76 trillion
yen ($36 billion) investment, a record high, in the year to
March 2012 on the back of strong earnings growth in the past few
years largely due to gains in oil and other commodity prices.
About a half or a third of that amount will be reinvested in
In the latest round of the battle for copper, Mitsubishi
Corp and Mitsui & Co stood against each other
in the high-profile face off between mining giants Anglo
American and Codelco in Chile.
Anglo shocked Chile's state copper giant last week when it
announced it had sold a 24.5 percent stake in its southern
Chilean copper properties to Japan's biggest trading house
Mitsubishi for $5.4 billion.
The move signalled an aggressive stance in Anglo's
negotiations with Codelco on the Chilean firm's option to buy 49
percent of the properties. Codelco has sued Anglo to prevent
further sales and says it is still entitled to exercise that
option, while Anglo says after the sale Codelco only has an
option on 24.5 percent.
Mitsubishi paid a hefty $520 million, or 10 percent, premium
to Codelco's valuation of the assets, Jiro Iokibe, analyst at
Daiwa Securities Capital Markets Co, said.
Codelco has secured a $6.75 billion bridging loan from
Mitsubishi's rival Mitsui & Co to buy the assets, in
which the Chilean company has given Mitsui an option to take the
24.5 percent stake which Mitsubishi has bought for $4.88
Japan's trading firms have been chasing copper assets as they
see the prospect for rising demand and limited supply leading to
higher prices for the industrial metal used in products ranging
from cars to electric wiring.
They expect demand in China, which accounts for 40 percent
of global demand, to continue rising for at least the next five
to six years while supplies remain tight due to a falling ore
grade, analysts said.
"Demand will be particularly tight in the next two years as
new mines will not come onstream until after 2014," Yasuhiro
Narita, analyst at Nomura Securities, said.
"Copper is one of their preferred assets, which has a large
trading volume, meaning less volatility, and there is no concern
of new substitutes emerging from technology development."
Three-month copper prices were quoted at about
$7,615 on Thursday on the London Metal Exchange, compared to
this year's high of $10,190, hit in February. The prices hovered
at around $4,400 at the end of 2005.
The Anglo purchase will nearly double Mitsubishi's yearly
copper output from 140,000 tonnes currently to 250,000 tonnes in
2012, boosting its net profit by 20-30 billion yen from next
year and some 40 billion yen after a planned expansion, analysts
"If you have more than 100,000 tonnes of copper output a
year from a cost-competitive mine, that will translate into
roughly 20 billion yen in net profit a year," said an analyst at
a Japanese brokerage, who asked not to be identified.
Smaller rival Marubeni Corp has a copper output of
125,000 tonnes and Mitsui 63,000 tonnes. Mitsui's output will
rise to 92,000 tonnes in 2014 when the Caserones mine in Chile
While demand is rising, falling ore grade and increasingly
difficult development conditions have boosted development costs.
"Most mines currently being developed are located in
inlands far from ports, causing development cost to balloon,"
said an official at the Agency for Natural Resources and Energy.
Japanese companies' copper development costs have risen to
an average of $5,600 a tonne since 2008, up from the average of
$2,500 during 1988 and 2005, according to government data. The
official said the copper content of ore has now fallen to about
0.4 percent down from about 1 percent in 2000.
Anglo American's Los Bronces and El Soldado copper mines in
Chile are seen having a cost-competitive edge as infrastructure
is already in place, analysts said.
They include a smelter and the recently discovered
copper-rich deposits Los Sulfatos and San Enrique Monolito.
Mitsubishi also holds a 7 percent stake in the Escondida
copper mine in Chile, the world's largest mine of the industrial
metal, controlled by BHP Billiton.