TOKYO, July 27 (Reuters) – Mitsubishi Materials Corp (5711.T) said on Tuesday it had settled its mid-year copper processing fees with BHP Billiton Ltd (BHP.AX)(BLT.L), but declined to give details.
Sumitomo Metal Mining Co (5713.T) on Monday also said it had agreed fees in mid-year talks with BHP, but did not disclose details.
But analysts and traders said fees were likely set at historic lows.
“We have absolutely no comment at this time,” a smelter official said. “The situation is different from the last time (fees were set) and is very severe. Each firm’s situation is different.”
An official at Pan Pacific Copper, 66 percent owned by JX Nippon Mining & Metals of JX Holdings (5020.T), said the company had not yet settled its mid-year fees.
Based on Reuters data, global smelting capacity has exceeded mining capacity this year.
Analysts and traders have said the fees, known as the treatment charge and the refining charge (TC/RC) and representing smelter profit margins, were expected to be set at around $39 per tonne and 3.9 cents per pound.
That would be about a 16 percent drop from January when full-year fees were set at $46.50/4.65 cents.
“TC/RCs are probably very near break-even levels for many smelters,” said an analyst at a mid-sized Japanese securities firm.
“The declining trend will continue given the tight supply,” the analyst continued, adding fees could see a further drop next year.
Mid-year negotiations cover about 10-20 percent of the volume handled through the year-end agreements for Japanese smelters.
A source at an Asian copper smelter said last week that mid-year copper processing fees are likely to be concluded with miners at a record-low level by the end of this month. [ID:nTOE66J07A]
Smelter capacity is expected to stay larger than concentrate output at least through 2011. In times of tight concentrate supply, companies are forced to offer lower fees to attract sufficient raw materials to keep their smelters running.
Too little concentrate and too many smelters have caused the deficit, which is likely to continue to widen until at least the end of 2012. [ID:nSGE66C07U]
Analysts said some smelters may still be squeezing profits from other operations to offset the damage from diminishing TC/RC, but a steady drop could eventually put some in a very difficult position.
Even if a floor in fees was found, however, fees were unlikely to rebound strongly from low levels, an analyst at another Japanese brokerage said.
A major driver for pushing TC/RC lower is China, which has expanded capacity this year and can accept lower spot fees partly because Chinese smelters can sell a by-product, sulphur acid, with profits at home where there is strong demand from the farming industry. (Additional reporting by Polly Yam in Hong Kong)