TOKYO -
(Reuters) - Japan's copper smelters have agreed to a one-third cut in processing fees from miners for the year starting in July, an industry association head said, confirming the steepest cut in three years.
The latest copper fees, known as treating and refining charges (TC/RCs), were set at roughly $50 per tonne and 5.0 cents per pound for mid-year contracts, down about 33% from contracts for January-December 2009 set at $75 and 7.5 cents.
"I think Japanese smelters have mostly agreed on copper processing fees of around $50 per tonne and 5.0 cents per pound," Masanori Okada, head of the Japan Mining Industry Association, told a regular news conference on Thursday.
Okada is also president of Nippon Mining & Metals Co Ltd, which is the parent company to Japan's top copper smelter, Pan Pacific Copper Co Ltd.
Nippon Mining itself is part of Nippon Mining Holdings Inc (5016.T).
The news comes after Mitsubishi Materials Corp (5711.T), Japan's third-largest copper smelter, said on Tuesday that it had agreed on copper processing fees for a mid-year contract more than 30% below those for calendar 2009, in talks with BHP Billiton Ltd (BHP.AX)(BLT.L), the world's largest diversified miner. [ID:nT106874]
BHP has declined to comment on the negotiations.
The lower processing fees, which are a pillar of revenues for Japanese smelters, will be a blow to earnings, said an industry official who declined to be named, due to the sensitive nature of the topic.
"The figures are a little better than mid-year for 2008/09, which I think are effectively the lowest ever, but I believe yen rates were a little better then and sulphuric acid prices were also better," he said.
Sulphuric acid, a by-product of smelting, was in demand in China.
The TC/RCs for last year's mid-year contract were set at $42/4.2 cents.
Tight supplies of copper concentrate have boosted competition among smelters for the raw material to produce the metal.
"We had no choice, there just was no concentrate around," Okada said.
He said Japanese smelters had faced strong headwinds from the start of mid-year copper talks with reports of falling production from many key mines.
Production at Chile's Escondida, the world's largest copper mine, which is owned 57.5% by BHP, fell 30% in the first quarter from a year earlier due to lower ore grades and technical reasons. [ID:nN22313043] [ID:nSYD115249]
"What added to the difficulty was (falling output) at Highland Valley, which boasts some of the best ore grades."
Okada was referring to Teck Resources' (TCKa.TO) cut in output expectations for this year at its Highland Valley mine in Canada. [ID:nLP155866]
BHP told Japanese smelters it was seeing strong demand from China, a view that is supported by the latest data showing China's refined copper imports hit a record for the fifth month in a row in June. [ID:nHKG22513]
Okada also confirmed that Japanese smelters had been unable to revive the price participation scheme, which takes into account changing copper prices.
"We would dearly have loved to bring back the price participation scheme, but the climate was clearly not suited for that kind of talk," he said.
The situation for Japanese smelters, which must buy the bulk of their raw material, would remain difficult as global copper demand was likely to outpace the availability of raw materials because of a lack of new mines being developed, Okada said.
"I think copper concentrate supplies will remain tight until about 2012," he said.
Turning to domestic demand for copper, which has slumped due to the economic downturn, Okada said there were signs that some copper products would see demand recover to about 70% of year-earlier levels in July-September.
"(The period) is typically a period of slow demand due to the summer, but there will probably be moves to buy partly to supplement inventory, which have been adjusted too drastically."
