Japan Copper Smelters and BHP Billiton Agree in 52% TC/RC Hike

Japanese major copper smelters and BHP Billiton, Australian ore supplier, seem to have agreed in the smelters’ margin hike by 52% in the mid-year price negotiation for one-year contract from July 2011 to June 2012, compared with the margin concluded at the end of 2010 for two-year contract for 2011-2012. In the latest mid-year price negotiation, treatment charge (TC) was set at US$ 85 per tonne and refining charge (RC) was set at 8.5 US cents per pound. TC/RC totals US$ 481 per tonne, which becomes the smelters’ margin.

TC/RC hike reflected recent loosening supply and demand balance of copper ore. Japanese copper smelters including Pan Pacific Copper (PPC), the largest smelter, had continued output reduction before Japan Earthquake. In and after March, Onahama Smelting & Refining was damaged and suspended by the mega earthquake.

Chinese major copper smelters passed the latest mid-year ore contract. Meanwhile, PPC recently agreed with BHP Billiton to set TC at US$ 90 and RC at 9 US cents for half-year contract for 2H 2011. TC/RC were improved by about 30% from 1H 2011.

Japanese copper smelters purchase copper ore from overseas suppliers mainly by two-year contract negotiated at the every yearend. In addition, major smelters have covered approximately 10% of their annual ore procurement by one-year contract negotiated in the every mid year. However, PPC passed the mid-year negotiation in 2010 and 2011. The mid-year negotiation is being marginalized.

PPC agreed with BHP Billiton in half-year pricing from the conventional yearend two-year contract in 2010. With Freeport-McMoRan Copper & Gold, PPC concluded two-year contract at the end of 2010 as usual.