Mining Journal > Production and Markets > BHP may win reduction in processing fees

Production and Markets

BHP Billiton Ltd, the world’s biggest mining company, may win a reduction in copper processing fees from Japanese smelters in mid-year supply contracts, said analysts at UBS AG and Daiwa Institute of Research.
     
BHP and Pan Pacific Copper Co, Japan’s largest smelter, this week failed to agree on processing fees for contracts starting July 1, Kan Komatsuzaki, Pan Pacific’s spokesman, said. Talks could continue until late July and smelters may be forced to accept a cut in the fees, said Takashi Murata, an analyst at Daiwa Institute of Research in Tokyo.
    
Processing fees for immediate delivery have dropped this year, helping boost mining company profits and curbing smelter revenues, as lower ore grades and declining mine output cut raw material supplies. A deal with Pan Pacific would set a benchmark for Japanese smelters. The so-called treatment and refining charges, or TC/RCs, usually drop when there is a shortage of raw material and smelters have to compete for deliveries.
    
“It’s highly possible Japanese smelters may be forced to accept lower TC/RCs at the last minute as concern over securing enough concentrate will mount amid tight supplies,” Mr Murata said.

Other Japanese smelters, including Sumitomo Metal Mining Co and Mitsubishi Materials Corp, may also decline to reach a deal this week, following Pan Pacific’s decision, Mr Murata said.
    
The copper smelters buy concentrate, a semi-processed form of ore used as a feedstock, at a price based on the London Metal Exchange benchmark minus the processing fees.
    
LME copper for delivery in three months, which plunged 5.4% on June 22, rose 1% to US$4,852/t in midday trade. The metal reached a record US$8,940/t in July last year.
    
Executives from BHP Billiton, based in Melbourne, and Pan Pacific held talks on June 22 in Vancouver in the second meeting since discussions started in mid-May, Mr Komatsuzaki said.
    
Samantha Evans, a BHP spokeswoman, declined to comment on the outcome of the talks.
    
BHP is likely to ask for fees similar to last year’s mid-year contracts, said Atsushi Yamaguchi, a Tokyo-based analyst at UBS. Japanese smelters have been trying to keep the 2009 calendar year contract level of US$75/t for smelting and US$0.07.5/lb for refining, he said.
    
Last year, Japanese smelters settled mid-year fees at around US$42.50/t and US$4.25/lb, according to data compiled by the Japan Mining Industry Association.
    
The yen’s strength against the dollar and price declines for sulfuric acid, a byproduct of copper smelting, may worsen profits of Japanese smelters, Mr Murata of Daiwa said.

Production at Escondida, the world’s largest copper mine, will be 30% lower this year because of repairs to a mill, Diego Hernandez, president of BHP Billiton’s base metals division said on June 8. Escondida will shut a faulty mill for 45 days during July and August, Mr Hernandez said.
    
Aurubis AG, Europe’s largest copper refiner, said June 18 in a weekly report that processing fees paid by mining companies to smelters to turn ore into metal had dropped to less than US$30/t. In last month’s report, the fees were quoted at as much as US$50/t.
    
Pan Pacific Copper is 66% owned by Nippon Mining & Metals Co, a unit of Nippon Mining Holdings Inc. Mitsui Mining & Smelting Co holds the remaining 34%.