BHP Billiton May Secure Lower Copper Processing Fees from Japanese Smelters

Strategic Insights -

BHP Billiton, the world's largest mining company, may be able to negotiate lower processing fees from Japanese smelters for its copper contracts due to a shortage of raw materials. The talks between BHP and Japanese smelters, including Pan Pacific Copper Co., have been ongoing, with no agreement reached yet. Analysts at UBS, Daiwa Institute of Research, and CRU expect a deal to be struck, potentially setting a benchmark for other Japanese smelters.

Key Takeaways:

  • BHP Billiton may secure lower processing fees from Japanese smelters due to a shortage of raw materials.
  • Talks between BHP and Japanese smelters, including Pan Pacific Copper Co., have been ongoing since mid-May with no agreement reached yet.
  • Analysts at UBS, Daiwa Institute of Research, and CRU expect a deal to be struck, potentially setting a benchmark for other Japanese smelters.
  • Processing fees for immediate delivery have dropped this year, helping boost mining company profits and curbing smelter revenues.
  • A shortfall of about 70,000 tons of contained copper in concentrates is expected, further tightening the market and putting pressure on smelters to accept lower fees.
  • Other Japanese smelters, including Sumitomo Metal Mining Co. and Mitsubishi Materials Corp., may also fail to reach agreement on processing fees.
  • BHP's executives held talks with Pan Pacific's executives on June 22 in Vancouver, the second meeting since discussions began in mid-May.

Statistics:

  • LME copper for delivery in three months rose 2.7% to $4,937 a metric ton by 11:29 a.m. in London.
  • The record LME copper price was $8,940 a ton in July last year.
  • Last year's mid-year contract fees for smelting were around $42.50 a ton per ton.
  • Last year's mid-year contract fees for refining were 4.25 cents a pound.
  • The 2009 calendar year contract level for smelting was $75 a ton.
  • The 2009 calendar year contract level for refining was 7.5 cents a pound.

Sources:

  • UBS AG
  • Daiwa Institute of Research
  • CRU
  • Bloomberg
  • Japan Mining Industry Association
  • Pan Pacific Copper Co.
  • BHP Billiton Ltd.
  • Sydney Morning Herald
  • Reuters