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Tight copper concentrate to force smelter cutbacks
By Anna Stablum
LONDON, Aug 18 (Reuters) - Copper processing fees arenearing a floor and are expected to stay low as smelters cutcapacity and the global raw materials market remains tight into2010, industry sources said.
The mid-year treatment and refining charges (TC/RCs), paidby miners to turn copper concentrate into metal, were negotiatedin July this year and smelters say the fees at just below $45per tonne and 4.5 cents per pound hardly cover costs.
"The TC/RCs must have reached a bottom now because they aremuch lower than the cash costs," a European smelter source said.
The benchmark for calendar year 2008 was $45 and 4.5 cents.
"For the annual negotiations for next year -- I wouldn'tthink we would see them below $40 a tonne," said analystChristine Meilton at London-based metal consultancy CRU.
Chinese smelters were seen cutting back as they had littleprotection from long-term contracts and turned to the spotmarket, signing even less favourable smelter processing deals.
The market saw a 120,000-tonne deficit in the first quarterfollowing a deficit of 300,000 in 2007, but maintenance closuresreturned it to balance in the second quarter, Meilton said.
"We think there will be smelter cutbacks to balance themarket in the second half ... we hear talk that some of theChinese smelters will be cutting back," she said.
In July, Chinese refined copper output rose by 14.2 percentto 330,000 tonnes year-on-year as smelters are deprived offeedstock, compared with 16.4 percent in June and 18.3 in May.
TIGHT MARKET TO 2010
In 2009 the raw materials market could see a shortfall of 1million tonnes that it would have to adjust to, Meilton said.
Last year a 165,000-tonne smelter in Thailand shut itsoperations and in Canada, HudBay Minerals (HBM.TO: Quote, Profile, Research, Stock Buzz) is underpressure with high costs and expenses in Canadian dollar.
Its 80,000-tonne Flin Flon smelter was first expected toshut by 2015 due to environmental regulations, but in May thisyear the company said it would have to close already next year.
"We cancelled contracts going forward because we couldn'tget economic charges," said Alan Hair, vice president ofmetallurgy at HudBay.
HudBay has decided not to enter into agreements to processthird-party concentrate beyond 2008, unless fees improve.
Most other smelters had found some relief from sales of theby-product sulphuric acid with prices hitting records this year.
Chief Executive Marius Kloppers of the world's largestminer, BHP Billiton Ltd (BHP.AX: Quote, Profile, Research, Stock Buzz)(BLT.L: Quote, Profile, Research, Stock Buzz), said on Monday somepeople failed to appreciate how long it took to dig new minesand bring more material to market. [ID:nSYD18149]
Global annual smelter capacity is forecast at 18.7 milliontonnes in 2012, up 13 percent from 2007, according to theInternational Copper Study Group (ICSG).
The smelter growth rate was projected to match theconcentrate growth rate up to 2010, but beyond that worldsmelter capacity utilisation rates would have to rise to meetthe increasing volume of mine supply, the ICSG said.
A tight concentrate market would support copper futuresprices with analysts forecasting a market deficit of refinedcopper of 68,000 tonnes in 2008, a Reuters survey showed.
(Additional reporting by Cameron French in Toronto, editingby David Evans)