August 15, 2013 / 10:27 AM / 5 years ago

China importers set for higher term-copper premiums after 2-year dip

* 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 producers

By Polly Yam

HONG KONG, Aug 15 (Reuters) - 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.


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.

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