Japan Smelters to Keep Electrolytic Copper Premium in 2007

Japanese copper smelters and domestic copper users, including electric cable makers and copper alloy product makers, seem to agree to set the premium unchanged for one-year purchase contracts of electrolytic copper ingot shipping in January-December 2007. The copper fabricators pay the smelters the premium in addition to copper price at London Metal Exchange. At the same time, Japanese smelters ask the fabricators to accept charge of about 1,000 yen per tonne other than premium for 2007 contracts. Copper alloy product makers already approved the charge within 2006, while electric cable makers not yet because price hike of electric cables is much difficult. The negotiation between the smelters and the electric cable makers is unlikely to finish within February. Japanese copper smelters aim to keep their profitability by additional charge on electrolytic copper ingot price to cover cost expansion such for fuel and distribution. Another background is that Japanese smelters lose profits gained from price participation (PP) system in 2007. Offshore copper ore suppliers and Japanese copper smelters had distributed profits gained from surge of copper price along PP system, 90% taken by ore suppliers and 10% by smelters. PP system was abolished at 2006 year-end price negotiation between Japanese smelters and offshore ore suppliers. Domestic electric cable makers are unwilling to approve cost up by additional charge of 1,000 yen per tonne. Their profits were seriously impacted by soaring copper price last year and haven’t improved enough yet, though additional cable price hike seems difficult. Demand of construction cables, for which large volume of copper is consumed, became slower since mid 2006 because the cable users appeared to reduce purchasing volume due to too high copper price. Domestic copper alloy product makers accepted additional charge by the end of 2006 when copper product demand was active such for copper tube. The cable makers aim to get optional terms, such for volume and delivery, in return for price charge by persistent negotiation toward the end of March. As to premium price, the export premium by CODELCO, Chile is regarded as an indicator for one-year contracts between Japanese smelters and copper fabricators. CODELCO set the premium at US$ 115 per tonne for 2007 shipment, unchanged from 2006 shipment. Japanese domestic premium would be unchanged in 2007 to reflect CODELCO’s case. Copper alloy product makers are likely to increase purchasing volume of electrolytic copper in 2007 from 2006, while electric cable makers would keep flat with slight fluctuation along each operating condition.