TOKYO - Some leading Japanese smelters have agreed to mid-year copper processing fees that industry sources say are probably some of the lowest ever agreed with foreign miners, in a reflection of tight concentrate supplies.
Japan's Sumitomo Metal Mining Co. Ltd. has settled on mid-year copper smelting and refining fees of $45 a tonne and 4.6 cents a pound with Highland Valley a domestic industry source said on Friday.
Highland Valley, owned by Canada's Teck Cominco Ltd., is one of the largest copper concentrators in North America.
The mid-year contract runs from July 2007 to June 2008.
The source said the deal includes a price participation, the clause in the contract that takes into account changes in copper prices, of 1.5 percent above $1.50 a lb with a 4 cent cap.
This compares with treatment and refining rates of $60/6.0 cents that was set for calendar 2007 in December, which was without a price participation clause.
"Those are shocking figures, and it makes me wonder if they can really manage," a second Japanese industry source said.
He said he believes the figures are probably some of the lowest ever. The treatment and refining fees for calendar 2004 were set at $42.5-$45 per tonne and 4.25-4.50 cents with better price participation terms, which industry sources at the time described as a two-decade low.
Japanese smelters were prepared for tough talks as tight supplies of copper concentrate, the raw material to produce the metal, combined with expanding smelter capacity particularly in China gave miners the advantage in the talks.
Smelters are competing for limited supplies of copper concentrate, which analysts say will be in deficit by around 500,000 tonnes this year.
BHP Billiton Ltd./Plc., the world's largest diversified miner, said it was settling copper processing fees at lower rates than last year.
Dealers said on Thursday that there was talk that BHP, which owns the world's biggest copper mine, Escondida in Chile, and Japan's largest copper smelter Pan Pacific Copper Co. Ltd. had signed a mid-year deal of $47 per tonne and 4.7 cents per pound.
They said the agreement did not include a price participation, but the details could not be confirmed.
The agreement with BHP is often seen as a benchmark.
"The Highland Valley settlement gives an indication that BHP Billiton may have been successful negotiating fees beginning with a 4," said Australian and New Zealand Bank analyst Andrew Harrington. It was not clear if Sumitomo Metal Mining had already settled with BHP.
A second resource analyst said: "Charges now are very competitive for the miners compared to how things were 12 months ago. Smelters are not in a strong bargaining position."
The first Japanese source said Sumitomo had not yet settled on processing fees with Indonesia's Batu Hijau mine, Asia's second-largest copper mine run by Newmont Mining Corp.
Domestic smelters have started to take a more active role in exploration by seeking more minority stakes in mines.
This, and the increased use of scrapped metal as a raw material by some Japanese smelters may have led the industry to believe that they were in a better position to weather the latest low processing fees, sources said.
The second Japanese source said that scrap accounted for about 20-30 percent of the raw material for Dowa Mining Co. Ltd.'s Kosaka smelter, which has an annual production capacity of about 72,000 tonnes.
"That is by no means a small figure," he said.