* Spot premiums at 4-year highs to push up 2014 term
premiums - trade
* Benchmark term premiums at $110-$130 seen likely in 2014
* High premiums may trigger bigger exports from Chinese
By Polly Yam
HONG KONG, Aug 15 China's refined copper
importers face paying premiums of as much as a third more to get
term shipments for 2014 as suppliers such as Codelco and BHP
Billiton take advantage of high current spot premiums to
negotiate pricier contracts, trading sources said.
The increase in term premiums could mean importers in the
world's biggest copper user may not raise contracted purchase
volumes for next year even if they expect stronger domestic
demand. They would then have to buy the metal from the
international spot market, exposing them to price risks.
Codelco, BHP , Glencore Xstrata
and other overseas firms, who supplied around
a third of the 7.7 million tonnes of copper that China consumed
last year, are set to begin negotiations between September and
November with the importers for the 2014 shipments.
The suppliers are hoping to raise term premiums this year
after cutting them in the past two years, the sources said.
Chinese importers have paid term premiums of about $98 per
tonne over cash copper prices on the London Metal Exchange
to Codelco, the world's top copper producer, for 2013
shipments, down from $110 for 2012 shipments. They have paid
about $85 for Japanese metal in 2013 versus $100 last year.
Codelco term premiums typically are used as the benchmark in
Asia. The firm and Chinese buyers agreed 2013 premiums in
November last year.
The term premiums for 2013 are much lower than spot
premiums, which have stayed at four-year highs of about $200 per
tonne since late June after onshore copper supplies fell and
importers boosted orders for spot metal.
Increased spot orders from China have helped copper prices
rally about 10 percent from a three-year low hit in late
June. In August 2012, spot premiums stood at just $50-$80.
Overseas suppliers have not put any formal term offers on
the table, though at least one supplier had mentioned $150-$160
premium in informal meetings with buyers, the sources said.
Codelco may offer $110-$130 term premium to China for 2014
shipments and Japanese producers are likely to ask for around
$100 premium, the sources estimated.
"It should not be a problem to increase the premium by $15
in 2014," a trader at a large supplier said, declining to be
named because he was not authorised to talk to media.
STRONG DEMAND FOR COPPER
Chinese buyers were preparing to accept hikes in term
premiums in 2014 since domestic demand this year has been
stronger than many had expected, and copper stocks in bonded
warehouses have fallen, the sources said.
"The 2014 premium may be agreed at between $110 and $130.
That level is reasonable and should be accepted by most buyers,"
said a source at a large Chinese end-user of refined copper,
referring to Codelco's metal. The source declined to be named
because the estimate was his firm's own assessment.
He said domestic demand of copper could surge in the coming
year since China would start new standards on some home
appliances in October this year, which could prompt home
appliance makers to boost production to replenish stocks.
"$110 should be a fair term premium for next year. If
suppliers ask for $150-$160, we prefer to import spot copper. We
expect premium talks to be tough this year," a trading manager
at a large Chinese trading firm said.
If the premium benchmark is $150-$160 for 2014, Chinese
refined copper producers may export as much term copper as they
can, since the producers are unlikely to receive the high term
premiums in the domestic market, he added. That would further
constrain supplies to the China market.
The $150-$160 premiums are equivalent to more than 900 yuan
($150). Chinese producers have received term premiums of about
200 yuan a tonne for 2013 shipments in the domestic market,
nearly half of what they had received in previous years.