SYDNEY Feb 18 Buying interest from Indian and Japanese smelters for spot shipments of copper concentrate has picked up in recent weeks on growing jitters that an impasse over Indonesian supply may be drawn out, traders said.
Indonesia in mid-January slapped a new tax regime on exports of copper concentrate as part of a strategy to boost value from its mineral wealth. Export taxes are set rise to 60 percent by the end of 2016, before a complete ban from 2017.
Global miners Freeport McMoRan Copper & Gold and Newmont Mining Corp have said the new regulations conflict with contracts they signed with Indonesia that exempted them from new taxes or duties. Both have halted shipments while they negotiate with the government.
But with talks stretching out, and bookings for April shipments set to pick up as top refined copper producer China cranks up for its peak second quarter, some smelters are looking to secure their needs, traders said.
"There's been a lot more stirring in the markets. We've had more people picking up the phone and asking, 'If we were to buy from you, what would be your terms,'" one concentrates trader said.
Mine supply tends to undershoot expectations each year because many copper deposits lie deep beneath the earth's surface or are in emerging market countries where sudden regulatory changes can hit production.
Although the market is expecting a flood of mine supply this year, traders are watching developments in Indonesian closely.
The country is a major regional supplier of copper concentrate, with Freeport and Newmonth accounting for nearly all of its output.
TREATMENT CHARGES FALL
Traders said that bids for new shipments have fallen to double digits, from treatment and refining charges (TC/RCs) that have held around the $105-$110 per tonne and 10.5-11 cents per pound mark for the past month, indicating smelters are prepared to earn less to win concentrate.
The charges dropped from $130 and 13 cents in December 2013 to $100-$105 in mid January after the tax was announced.
"The Indians and Japanese have some buying interest but not more than what's available on spot or adjustable in ... advancements," another trader at a merchant said, adding that a Philippines smelter that closed after Typhoon Haiyan late last year had also started to accept deliveries.
Global miners or trading houses pay TC/RCs to smelters to convert concentrate into refined metal, with the charges deducted from the sale price, based on London Metal Exchange copper prices .
Charges typically fall when concentrate supply tightens.
Goldman Sachs estimates that the market is losing around 25,000 tonnes from Freeport's Grasberg operations and 10,000 tonnes from Newmont's Batu Hijau each month, although it estimates a large global buffer of concentrate of more than 500,000 tonnes.
"To some extent Newmont and Freeport have managed to mitigate it. They foresaw this happening, their shipping schedules for exports have been geared towards the latter half of Q1 and into Q2.. But obviously, time is ticking," a third trader said.
Some analysts don't expect a resolution of the shipments issue ahead of Indonesia's parliamentary elections in April and possibly until a new President is in place by October.
"We now see any backtracking of a nationalist policy such as the minerals export ban unlikely prior to the completion of the election process," said Macquarie analysts attending an Indonesian mining conference, in a research note overnight.
But there may still be some movement before then.
Freeport said earlier this month that it would look at building a new copper smelter, one of the demands of the Indonesian government.
Six companies affected by the minerals ban, which includes minerals other than copper, have also begun the process of applying for export permits, which could be approved as soon as next month, a senior government official said this week.