Codelco Said to Raise Copper Fee 35% for Chinese Users

Codelco, the world’s biggest copper producer, agreed with two Chinese buyers to raise the surcharge on sales by 35 percent next year, according to two industry officials involved in the negotiations.

The fee, added to the price of metal for immediate delivery on the London Metal Exchange, will increase to $115 a metric ton from $85 this year, said the officials, who declined to be identified because the decision hasn’t been made public. China is the world’s largest consumer.

Copper, used in cables and pipes, advanced 10 percent this year and climbed to a record $8,966 a ton in London on Nov. 11 as demand led by China outpaced supply and as investors bought commodities to protect their assets. The move by Codelco sets a benchmark and may prompt Freeport-McMoRan Copper & Gold Inc. and Pan Pacific Copper Co. to follow suit. The increase tops gains of 32 percent for Korea and 31 percent for Japan.

“This falls into the higher end of our expected range,” said Grace Qu, an analyst at metals advisory company CRU International Ltd. in Beijing. “Codelco seems to be very confident of next year’s market,” she said by phone today.

Copper will lead a rally in base metals into 2011 as increased consumption cuts stockpiles and weaker currencies spur investment demand for commodities, according to Morgan Stanley.

Mine Capacity

The metal has the “potential to have a structural shortage of supply for longer than any of the other metals,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said Nov. 9. There’s been underinvestment in mine capacity over the past decade and a “significant problem” of declining ore quality, he said.

Consumption of copper in China will be higher than expected this year because of strong demand from makers of autos, air- conditioners and electronics, according to Beijing Antaike Information Development Co.

Use of refined metal will probably grow by 11.5 percent to 6.8 million metric tons this year, more than Antaike’s forecast for an expansion of 10.7 percent in the middle of this year and 8 percent at the start of 2010, Yang Changhua, a senior Antaike analyst, said in Ningbo Nov. 3.

“The premium shows market participants are still quite optimistic about demand from China next year, despite the prevailing tightening theme these days,” Ying Haoliang, an analyst at Orient Securities Futures Co., said from Shanghai.

Lending Limits

Copper for three-month delivery dropped 2 percent to $8,122.50 a ton at 7:02 p.m. in Singapore today on concern demand may weaken as China cools the fastest inflation in two years. The biggest banks are close to reaching annual lending quotas and plan to stop expanding loan books, according to four people with knowledge of the matter.

Global supply and demand supports today’s increase, said Ying from Orient Securities. World refined output will lag behind demand by 435,000 tons next year, the first shortage since 2007, according to the International Copper Study Group.

Codelco increased the fee to $98 a ton for Japan and Korea next year from $75 and $74 in 2010, according to industry officials this month. The producer will raise the surcharge in Europe to $98 a ton from $80, said a person with direct knowledge of the matter on Oct. 12.

The state-owned company’s office in Shanghai referred queries to the headquarters in Santiago. A call to the number in Santiago listed on the company website wasn’t answered outside of office hours.

--Helen Sun. Editor: James Poole