BHP Billiton and Japanese Copper Smelters in Hard TC/RC Negotiation for 2010-2011

Japanese copper smelters and BHP Billiton are in hard price negotiations for 2010-2011 copper ore shipment. Japanese smelters and Freeport-McMoran Copper & Gold (FCX) recently agreed to set treatment charge (TC) at US$ 46.5 per tonne and refining charge (RC) at 4.65 US cents per pound for 2010-2011 shipment. TC/RC totaled approximately US$ 263 per tonne. Meanwhile, BHP Billiton is offering 8% lower TC/RC against Japanese smelters. The smelters and BHP Billiton couldn’t reach agreements at the negotiations held in last weekend in Japan due to the smelters’ strong disapprovals.

. Copper smelters pay ore charge to ore suppliers, which is calculated by copper price at London Metal Exchange minus TC/RC. BHP Billiton owns the world largest copper mine, Escondida of Chile.

BHP Billion is offering TC at US$ 43 per tonne and RC at 4.3 US cents per pound, those which total approximately US$ 242 per tonne. This offer is even worse for Japanese smelters than TC at US$ 45 and RC at 4.5 US cents (total US$ 256) for 2008-2009 shipment, when Japanese smelters approved the worst TC/RC. BHP Billiton’s current TC/RC offer is as same as 2004-2005 shipment but there existed price participation (PP) system at the previous time. Along PP system, ore suppliers and copper smelters distributed profits gained from copper price upsurge, 90% taken by ore suppliers and 10% by smelters.

BHP Billiton and Japanese smelters set TC at US$ 75 and RC at 7.5 US cents (total US$ 425) for 2009-2010 shipment. Japanese smelters’ income, which equals to TC/RC, improved by 66% from the previous year. Copper ore supply temporarily loosened due to global economy deterioration. For 2010-2011 shipment, Japanese smelters’ income will lower by 38% year-to-year with FCX and may decrease by 43% with BHP Billiton.

Productive troubles are occurring at offshore copper mines. Escondida mine implements output reduction due to SAG mill’s trouble. Additionally Chinese middle- and small-size smelters are currently purchasing copper ore at significantly low price. BHP Billiton keeps the strong selling stance with these factors.