Pan Pacific, Tongling Win Copper Fee Hike From BHP

Pan Pacific Copper Co., Japan’s top copper smelter, and Tongling Nonferrous Metals Group Co. secured an increase in copper processing fees this year from mining companies in a move to six-month as well as annual contracts.

Pan Pacific agreed to $70 a metric ton for treatment fees and 7 cents a pound for refining in the first half with BHP Billiton Ltd. and $56 and 5.6 cents for the full year with Freeport-McMoRan Copper & Gold Inc., said two executives with knowledge of the matter. Tongling, China’s second-biggest smelter, set $72 a ton and 7.2 cents a pound with BHP for the first half, the company said on Feb. 15. The fees were $46.5 and 4.65 cents in 2010.

Copper, used in cables, wires and pipes, jumped to a record $10,190 a ton on Feb. 15. Rio Tinto Group, the third-largest mining company after BHP and Vale SA, forecast prices will stay high before supply from new projects alleviates a shortage. Treatment fees climb when ore supply increases as miners compete for smelting capacity. Global output will trail demand by 822,000 tons in 2011, Barclays Capital said last month.

“This year is unprecedented as the industry has set two representative fees for the first time -- one for annual and the other for semi-annual contracts,” Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. in Tokyo, said by phone today. “The increase was smaller than smelters had hoped.”

JX Nippon Mining & Metals Corp., which owns 66 percent of Pan Pacific, sought processing charges near $80 a ton and 8 cents a pound this year as spot fees jumped to $80 to $90 and to 8 to 9 cents from below $10 and 1 cent in the middle of last year, Masanori Okada, chief executive officer of the company, said Dec. 16. The company is a unit of JX Holdings Inc.

South America

Pan Pacific also settled with an unidentified South American mine at $80 and 8 cents for this year, the company said Jan. 24. BHP and Freeport won a 38 percent cut in fees last year as smelters competed for tight supplies of concentrate.

Mitsubishi Materials Corp., Japan’s third-largest copper producer, had settled processing fees with BHP and Freeport, spokesman Hisato Matsubara said Jan. 24, declining to elaborate.

Calls to Phoenix, Arizona-based Freeport outside of office hours today were not answered. Fiona Martin, spokeswoman for Melbourne-based BHP, declined to comment.

All the agreements in China were signed for the first half, according to Yang Changhua, a senior copper analyst at metals researcher Beijing Antaike Information Development Co. “The miners have bargaining chips, given the tight market,” Yang said. “As they prefer signing the deal every six months, it’ll probably be agreed by smelters.”

Sterlite, Hindalco

Sterlite Industries （India） Ltd. and Hindalco Industries Ltd., India’s biggest copper processors, won a 20 percent increase in fees to $56 a ton and 5.6 cents a pound, according to two people with knowledge of the talks.

Copper mining companies and smelters agreed to the first settlements on fees, Aurubis AG said in its Feb. 15 report. “The usual benchmark process has been changed for the first time in years and different fixation periods agreed of between three and 12 months,” it said.

Treatment fees are expressed in dollars per ton of concentrate received and refining fees in cents per pound of copper in the ore. The fees are deducted from the price paid by smelters to mining companies for the raw material.

The fees are typically negotiated twice a year, with most of the volume handled through the year-end accords. In July, fees were set at $39 and 3.9 cents for contracts that began July 1. Declines in fees reduce revenue for smelters.

Asked if the price agreements were following the example of the steel industry that ended a decades-old system of annual contract talks in favor of quarterly accords, Murata said: “It may be a temporary phenomenon” as spot fees rose unexpectedly during the negotiation period as mine supplies increased.

“A shorter contract period may mean more risk for smelters, if the market is expected to face tighter supplies of raw material,” he said.

Copper for three-month delivery gained 0.2 percent to $9,857 a ton today on the London Metal Exchange and is up 2.7 percent this year.