* Some shipments already resold to China at TC/RC about
* China smelters to buy more spot concentrates to boost
* Sterlite losing around 3,000-3,500 tonnes concentrate use
* Spot TC/RCs hinge on duration of Sterlite closure
By Polly Yam and Melanie Burton
HONG KONG/SINGAPORE, April 10 Chinese copper
smelters are set to cash in on the closure of India's top
smelter by raising production in the current quarter to benefit
from higher treatment and refining charges for raw material
India ordered Sterlite Industries to shut the
smelter in Tuticorin in southern Tamil Nadu state over
allegations of a gas leak. A fast-track environmental court has
deferred until April 12 a hearing on allowing the plant to
Global miners and traders impacted by a 'force majeure'
declared by Sterlite on deliveries of copper concentrates are
seeking to resell their cancelled shipments, traders said. An
international trading house has already resold its shipments due
in April and May to Chinese smelters, they said.
Those shipments of clean, standard-grade concentrate were
sold with treatment and refining charges of about $65 per tonne
and 6.5 cents per pound right after the seller received the
force majeure from Sterlite, traders said.
The charges were higher than about $60 and 6 cents for spot
concentrates to China in March and charges for recent
international tenders that were below $60 and 6 cents, traders
"Spot TC/RCs are being discussed at about $70-$75/7-7.5
cents now," said a trader at an international trading firm, who
declined to be named because he was not authorised to talk to
"We believe China will buy more spot concentrates."
Concentrate sellers 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
. The charges usually rise when supply increases.
A trade source in India estimated Sterlite may have reduced
concentrate consumption by around 30,000-40,000 tonnes since the
closure, meaning this material may be available to boost supply
in global markets.
"They would have lost in a week at least 3-4 parcels of
consumption. That is the consumption they are losing, around
3,000-3,500 per metric tonnes per day, that's a ball park
figure," he said.
Usually force majeure, a contract clause that allows a
company to miss shipments in circumstances beyond its control,
does not apply to vessels already on water. But Sterlite has
applied its force majeure to all parties, traders said,
potentially boosting concentrate supply further.
Chinese copper smelters were already poised to raise metal
production in the second quarter after they slowed output during
the Lunar New Year holiday in the first quarter. The higher
charges would prompt the smelters to operate even higher
production rates, Yang Changhua, senior analyst at state-backed
research firm Antaike said.
"The production in the second quarter could rise by about
100,000 tonnes from the first quarter," Yang said, who estimated
China's refined copper production reached 1.46 million tonnes in
the first quarter.
"Fundamentally, the need for imports of refined copper would
fall as domestic production rises."
REFINING CHARGES CLIMB
This is not the first time Sterlite's environmental
standards are coming under scrutiny. A 2005 Indian government
study said the smelter leaked arsenic and heavy metals into the
soil and water.
The company says it has since complied with recommendations
by pollution authorities to improve environmental standards.
Traders are expecting spot charges to rise but others warned
that the Sterlite closure may prove short-lived, muting overall
market impact, as the smelter pushes to reopen.
"The feeling is that this should not last long, that it's
more of a political game rather than anything else," said the
trade source in India. "But if it doesn't get resolved on
Friday, it could get nasty," he added.
Near term charges are rising but the charges may be capped
below the $80/8 cents mark, traders said.
"I hear that spot TC/RCs have risen to $75/7.5 cents on the
Sterlite news," a smelter source in Asia said.
These charges are higher than a $69 and 6.9 cents contract a
Chinese smelter signed with a global miner for shipments between
March and September, and above the benchmark $70 and 7 cents
Chinese smelters won from global miner Freeport McMoRan Copper
and Gold for 2013 concentrate imports.
(Editing by Muralikumar Anantharaman)