Japan Copper Smelters Offer 70% TC/RC Increase for 2011-2012

Japanese copper smelters and offshore copper ore miners are in tough price negotiations for 2011-2012 shipment. Japanese smelters have requested more than 70% margin increase against ore producers compared with 2010-2011 shipment since ore supply has recently eased due to weakening demand from Chinese and Indian smelters. Ore suppliers seem to be unwilling to approve Japanese smelters’ terms and intending to extend the negotiations until market condition improves for them.

Pan Pacific Copper, Japanese largest copper smelter, offered TC (treatment charge) of US$ 80 per tonne and RC (refining charge) of 8 US cents per pound against offshore miners including BHP Billiton and Freeport-McMoRan Copper & Gold for 2011-2012 shipment. TC/RC totals approximately US$ 453 per tonne. Smelters pay ore charge to ore suppliers, which is calculated by copper price at London Metal Exchange minus TC/RC.

TC was set at US$ 46.5 per tonne with RC at 4.65 US cents per pound for 2010-2011 shipment. TC/RC totaled approximately US$ 263 per tonne and hit the historically lowest level. PPC’s latest offer is 72% higher than 2010-2011 and represents the highest since TC of US$ 95 and RC of 9.5 US cents for 2006-2007 shipment.

Copper smelting cost is currently estimated at US$ 600 per tonne. Japanese smelters have purchased copper ore at very unprofitable price level since 2006. The background is said that Chinese and Indian copper smelters have aggressively expanded output capacities and actively procured copper ore even at unprofitable cost.

In recent years, ore suppliers had started price negotiations with Chinese and Indian smelters at first in order to conclude advantageous price contracts. After these contracts, Japanese smelters had to approve disadvantageous price terms.

However, Chinese and Indian smelters are recently decreasing ore procurement. Ore supply is easing. Spot TC/RC was as high as US$ 90 and 9 US cents when Japanese smelters entered 2011-2012 price negotiations. In China, copper alloy fabricators are under low operations due to electric power supply regulations. Chinese smelters don’t need to secure copper ore in hurry. In India, operative troubles are occurring at some smelters.