Japan Smelters to Regain Foothold for Cu Business

Japanese copper smelters won negotiation with offshore major miners to get higher treatment and refining charges for 2011 shipment. The charge is still much lower than basic smelter’s cost of US$ 600 per tonne. However, the gain could be the first step for the smelters to regain the foothold when ore supply balance gets less tight and the smelters increase captive resources.

Japanese largest copper smelter of Pan Pacific Copper agreed with Freeport-McMoRan Copper & Gold to increase the charges to total US$ 317 per tonne for 2011-2012 shipment, which is around 20% higher than 2010-2011 shipment. Pan Pacific Copper agreed with BHP Billiton to increase the total charge to US$ 396 per tonne for first half of 2011, which is around 50% higher than the level for 2010-2011 shipment.

Japanese smelters expect the charge level hit bottom while the charge has decreased for years. The total charge hit the lowest US$ 256 per tone for 2008 due to worldwide strong demand. Current looser supply balance allowed the higher charged for 2011 shipment when smelters in India and China hold the order for copper ore.

A source in Japanese smelter expects copper ore supply would turn into oversupply as early as in 2015. The expectation is based on slower demand growth in China and hither copper ore supply including ore from higher copper price oriented new projects.

The pricing term for the charge has been fixed for 2 years usually for the yearend negotiation. However, Pan Pacific Copper agreed with BHP Billiton for half year pricing while they skipped traditional mid-year negotiation for one year contract in 2010. Pan Pacific Copper agreed with South American miner for 2 years purchase contract with every year pricing term. The pricing system is changing gradually and flexibly.

Japanese smelters try to increase the captive ore weight for the requirement. Pan Pacific Copper increases the own ore rate from current 20% to 70% when the firm launches Caserones copper mine of Chile in 2013 and plans to develop Quechua mine of Peru. The lower dependence on other miners strengthens Japanese smelters’ bargaining power for the charge.