September 26, 2013 / 3:56 PM / in 4 years

UPDATE 2-Chile Codelco eyes 2014 copper premium hikes -source

* 2014 copper premiums set to rise in China, Europe

* Producers seeking higher terms amid renewed optimism

* Final numbers to be hashed out in coming weeks

By Alexandra Ulmer and Fabian Cambero

SANTIAGO, Sept 26 (Reuters) - Leading copper producer Codelco will seek a significant rise in 2014 copper premiums due mostly to renewed strong demand from top buyer China, but the jump will be lower than many have predicted, a source close to the Chilean miner told Reuters on Thursday ahead of annual contract negotiations.

The source said the state miner expects the rise won’t be “enormously different” to that touted by Europe’s biggest copper smelter Aurubis, which has said it expects to raise premiums by 22 percent to around $105 per tonne next year.

Aurubis’ rate sparked some projections Codelco’s premiums could rise to around $135-140, but the source said that would be too “aggressive.”

Japanese smelters shocked the market with a proposed 45 percent increase in charges to Chinese end users. Subsequent estimates that Codelco could seek $130-$150 premiums in China is likely less off the mark, though still high.

Codelco, whose premiums are seen as an industry benchmark, wants the rate to reflect a resurgent market. But it cannot stray too far from the numbers that have already been quoted, the source added.

Premiums for the United States are also set to post a significant jump.

The exact figures to be put forth at negotiation tables have not been settled yet, the source stressed. When contacted by Reuters, Codelco said it doesn’t comment on premiums, which are paid in addition to the London Metal Exchange copper prices .


The drive to seek higher rates underlines a renewed confidence among producers-- especially when compared with this year’s premiums, which stood at $98 in China and $85 in Europe.

But spot rates have lept far above those numbers, giving producers more leverage to seek steeper premiums for next year.

“This year has been an anomaly,” one Chile-based trader said in reference to the discrepancy between the two rates. As a result, he predicts Chinese premiums will be around $145 while European premiums will settle at roughly $120.

Recent data in China, which consumes about 40 percent of the world’s red metal, points to a tentative turnaround in the world’s second-largest economy.

But market dynamics have also played a role in tightening the market. Warehouse incentives to attract metal, as well as a wide contango and low-cost financing, make it profitable for traders to store the metal for long periods of time and sell at a future date.

And while copper is down roughly 9 percent so far this year, it has recovered from a three-year low of $6,602 a tonne touched in June.

Still, some market participants warn the global economy remains fragile, and that steep premium hikes may be overly ambitious.

Next year’s global copper ore treatment and refining charges (TC/RCs) could rise above $80 a tonne and 8 cents a lb from this year’s $70 a tonne and 7 cents a lb, according to the source.

TC/RCs are paid by miners to smelters to refine concentrate into metal. As the supply of concentrate increases, the demand for smelting capacity and the charges also rise, translating into higher profits for smelters.

Codelco pulls major weight on the global copper market, as it produces around 1.7 million tonnes of copper per year- roughly 10 percent of the world’s output.

And while avid consumer China remains its top client, Codelco is interested in increasing its metal shipments to the United States, according to the source.

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