Japan Copper Smelters Accept PP System Abolishment with Grasberg

Japanese copper smelters and Grasberg mine of Indonesia reached agreement in 2006 year-end price negotiation for copper concentrate shipped in 2007-2008, along which Japanese smelters set treatment charge (TC) at US$ 60 per tonne, refining charge (RC) at 6 cents per pound. Price participation (PP) system was abolished and some terms for ore cost payment were revised. The agreement conditions became disadvantageous for Japanese smelters than previous negotiation following the case with Escondida mine of Chile in December 2006.PP system was abolished in 2006 year-end price negotiations between Japanese smelters and offshore ore suppliers, along which ore suppliers and copper smelters distribute profits gained from surge of copper price, 90% taken by ore suppliers and 10% by smelters. Japanese smelters lose profits other than 15 cents per pound of TC/RC. Their profitability becomes worse by about 30% from 2006 mid-year price negotiation in which PP system existed.Due of ore cost payment was extended for about 20 days after ore arrival at Japanese quays. The due was within 3 days so far. Interest burden can be eased for Japanese smelters, though the agreement terms were unfavorable for them as total.Japanese smelters face urgent necessity to advance their own mines with the reluctant results. They need to decrease dependence on Escondida mine as high as 20% in Japanese whole copper ore import by development of 100% owned mines or more investment for existent mines.The smelters seek restoration of PP system in 2007 mid-year and year-end price negotiations for copper concentrate shipped in July 2007-June 2008 and 2008-2009. Copper smelters cannot gain profits only with 15 cents of TC/RC even in China and India. Some smelters consider output reduction with worse profitability.