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26. May 2011

BHP Billiton to pay higher copper processing fees to Chinese smelters

The Australian reported that Chinese smelters have secured higher copper processing fees from global miner BHP Billiton for the H2 of 2011.

A person with direct knowledge of the matter said that the increase is mainly due to sufficient concentrate supply and will benefit struggling smelters whose profits had been squeezed for years as they expanded production capacity on the back of higher copper prices and demand prospects for the red metal in the world's largest consumer.

The processing fees, known as TC and RCs were settled at USD 90 per tonne for treatment charges and USD 9 cents per pound for refining charges well above H1 TC and RCs of USD 72 per tonne to USD 77 per tonne and 7.2 to 7.7 cents per lb with Jiangxi Copper Group securing the highest rate of USD 77 per tonne, a 65% increase from the 2010 level of USD 46.5 per tonne.

Miners pay TC and RCs to smelters for processing concentrate into refined metal. These fees are a main source of revenue for smelters and tend to rise when concentrate supply is strong or when smelters keep operational rates low to cut output.

The H2 rates fixed by Pan Pacific and the Chinese mills are lower than current spot TC and RCs of above USD 100 per tonne. Spot rates are little changed from April levels but much higher than the USD 70 per tonne to USD 80 per tonne levels before the March 11 earthquake in Japan which damped copper's near term demand outlook.

Several hundred thousand tonnes of copper concentrate originally bound for Japan were suddenly available in the market and pushed spot TC and RCs higher, giving smelters more bargaining power in negotiations.

Traders said that industry participants said that Chinese smelters have bought at least 60,000 tonnes of copper concentrate originally bound for Japan with Tongling Nonferrous Metals Group grabbing most of the cargoes. Global miners usually conduct annual contract negotiations with Chinese smelters including Jiangxi Copper and Tongling Nonferrous Metals Group, as well as smelters in Europe and Japan at the start of the year.

This year, however, BHP chose to sign half yearly deals with Asian smelters, making a second round of negotiations necessary. Other miners settled TC and RCs for the full year as is the norm. Freeport McMoRan Copper & Gold settled the rates at USD 56.50 per tonne and USD 5.65c per lb.

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