Copper concentrate ‘seller’s market,’ Sumitomo Metal says

Production and Markets

Copper concentrate will be in short supply for at least five years, forcing Sumitomo Metal Mining Co, Japan’s second-biggest smelter, to keep producing at a reduced rate, the company said.

“It’s a seller’s market for concentrates and I don’t think this will change before 2014 or 2015” when supplies from new projects increase, Nobumasa Kemori, president of the company, said in an interview. The shortage pushed processing fees to the lowest level in almost four decades, according to the Metal Economics Research Institute of Japan.

Production from Escondida in Chile, the world’s biggest copper mine, will drop as much as 10% next year, BHP Billiton said on Aug 25. Freeport-McMoRan Copper & Gold Inc plans to defer some output at its Grasberg mine in Indonesia, the second-largest, for safety reasons. Global treatment fees have tumbled as smelting capacity outpaced mine supply, hurting producers in Japan, the biggest concentrate importer after China.

A scarcity will persist for “the foreseeable future,” Antofagasta plc, which owns three Chilean mines, said Aug 24. Barclays Capital raised its price estimates for the metal on Aug 13, citing increased demand.

Treatment charges slumped by more than 15% to US$39/t for mid-year supply contracts, Antofagasta said Aug 24. A fee of US$39/t and 3.9c/lb is the lowest since 1973, according to data compiled by Hirosuke Chihara, a researcher at the Metal Economics Research Institute.

Sumitomo Metal plans to produce 404,000t of copper cathode in the year started April 1, 10% less than the 450,000t capacity at its Toyo smelter, and is likely to keep output at that reduced rate until at least 2014, Kemori said.

“We don’t want to increase output with raw material sourced from the spot market” where fees are even lower, Kemori said. The company secures raw material mostly from shareholdings in overseas mines and long-term contracts.

Jiangxi Copper Co, China’s biggest producer, said domestic smelters may cut production as processing fees dropped to a “historical low.” Treatment and refining charges have dropped to a level that doesn’t cover the costs of smelting in China, the Guixi, Jiangxi Povince-based company said Aug 25.

Production at Escondida will decline as much as 10% by the middle of 2011 because of lower ore grades, according to BHPB, which owns a 57.5% stake in the mine. Output will slide at least 5% in the fiscal year through June, the company said.

In Indonesia, Freeport-McMoRan plans to defer the mining of about 130Mlb of copper through 2014 at the Grasberg mine in Papua for safety reasons, Chief Executive Officer Richard Adkerson said July 21.

The copper cash price on the London Metal Exchange will average US$6,700/t in the third quarter and US$7,000/t in the fourth quarter, according to Barclays. The previous forecasts were US$6,250 and US$6,500 in July.

Sumitomo Metal may double expenditure on investment in overseas mines and on exploration in the three years to March 31, 2013, Kemori said. The company, also the country’s biggest nickel and gold producer, may spend Y100 billion (US$1.2 billion) on copper, nickel and gold mines, up from Y48.2 billion in the previous three years, he said.

The company plans to spend Y4 billion a year in exploration in the next three years, Kemori said. That compares with Y2 billion a year in the previous three-year plan.

Sumitomo Metal is exploring about 20 sites in Chile, Peru, Brazil, Canada and Australia, with two or three promising ones, he said.

Sep 1 (Bloomberg)