Metal Products News
- Smelter fee cut to hit margins, expansion
Date: 17-Dec-2007 Sources: (Shenzhen Daily)
CHINA'S top copper smelters have sealed deals to transform concentrate into metal at fees 21 percent lower than settlement prices for 2007, pressuring margins and putting ambitious expansion plans in doubt.
Jiangxi Copper Co. Ltd., China's top integrated producer, and Daye Nonferrous, the fifth-largest, have joined Tongling Nonferrous Metals, and Jinlong Copper, agreeing fees with BHP Billiton Plc./Ltd.
The fees set with Jiangxi Copper and Daye were at US$47.2 a ton to smelt the concentrate into copper anode and a further 4.72 cents a pound to refine that material into finished copper, the same terms that Tongling, China's second-largest copper producer, and Jinlong agreed with BHP early last week.
'Jiangxi Copper and Daye signed, making it four major smelters that have concluded the fees so far,'said a source at China Smelters Purchase Team, which groups the country's top nine smelters into one unit for importing concentrates, the main material for refined copper production.
Trade managers at Jiangxi Copper and Daye declined to comment on their deals. The two smelters are members of the team.
The move serves as a guideline for Japanese smelters that have not concluded 2008 processing fees, which are important to smelters' revenues and means smaller smelters may face tough times next year.
Analysts said big smelters, including Jiangxi Copper, would also be affected and could delay expanding production next year, even though they have added capacity.
'We may see some temporary shutdowns in China's refining sector, but given the capital costs of building these things they won't rip them out of the ground,'said Gerard Burg, an analyst at National Australia Bank.
'There may also be some delays to new capacity coming onstream,'he said. 'There is excess capacity in the refining sector and it's largely a Chinese story.'
According to Reuters Metals Production Database, China's copper refining capacity is expected to grow by 25 percent in 2008 to 3.65 million tons from 2006 as investment pours into the metals industry.
And all those smelters chasing limited supplies of concentrate mean that mining companies can squeeze down the fees they have to pay to turn their product into metal.
The low fees could encourage some smelters to turn more into recycling metal, but supplies of scrap are also likely to be constrained.
'Scrap supplies are likely to be tight next year given that the U.S. property market is not good which will discourage rebuilding old houses, cutting copper scrap,'an investment manager in Guangdong said.
Indian copper smelters who have to buy on the international market are facing an even tougher climate.
The team source said BHP settled deals in India at US$45 and 4.5 cents because freight costs were lower to Chinese ports than India.
The concentrate to the Chinese smelters and the Indian smelter would come from Chile's Escondida mine, which is majority-owned by BHP.
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