January 13, 2020 / 2:42 PM / 15 days ago

Codelco may not renew copper supply deal with troubled Chinese smelter: sources

BEIJING/LONDON (Reuters) - Top copper miner Codelco may not renew an agreement to supply copper concentrate to China’s Shandong Fangyuan for 2020 because of financial problems at the private smelter, three sources with knowledge of the matter said.

FILE PHOTO: Codelco's logo is seen at the entrance of its Ventanas copper smelter in Ventanas, Chile October 18, 2019. REUTERS/Rodrigo Garrido

Copper smelters in China are battling razor-thin margins and sliding profits brought on by low treatment charges paid by miners for converting concentrate into refined metal.

Fangyuan in December denied online rumours it had filed for bankruptcy, saying that operations were running normally although it had a “certain degree of liquidity shortage” at the time.

Chile’s Codelco, which asks for upfront payment each year in its rolling supply deals, was discussing sending 20,000-30,000 tonnes of copper concentrate to long-term customer Fangyuan in 2020, two of the sources said. That works out at 6,000-9,000 tonnes of metal content.

There will be “no sales until they have a sound financial shape,” one of the sources said.

A third source gave a range of 20,000-40,000 tonnes of concentrate but said negotiations stopped last month when Fangyuan’s financial problems came to light.

He put the smelter’s current production rate at 25-35% of capacity.

Fangyuan, based in the city of Dongying in eastern China’s Shandong province, has an annual production capacity of 700,000 tonnes of refined copper and accounts for 3% of global output, according to a company statement on Dec. 17, which also said the smelter was actively sorting out its problems.

Fangyuan did not respond to an emailed request for comment on the Codelco supply contract and its current production rate.

Codelco said in a statement the company renewed a supply contract with Fangyuan in 2019 and “for now, we are not in any negotiation”.

A source close to Fangyuan said the company also relied on trading houses such as Trafigura for copper concentrate supply.

The Swiss trader is also a copper cathode purchaser through a prepayment deal with Fangyuan backed by banks.

Trafigura declined to comment.

Reporting by Tom Daly in Beijing and Zandi Shabalala in London; Additional reporting by Julia Payne and Fabian Cambero; Editing by Veronica Brown, Kirsten Donovan

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