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Japan's Pan Pacific, BHP set copper fees
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October 4, 2006 - 7:34PM
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Japan's Pan Pacific Copper Co Ltd has agreed with BHP Billiton to set copper fees at $US60 a tonne and 6.0 US cents a pound for the July 2006-June 2007 period, a company official said on Wednesday.
A price participation clause in the contract has been retained, although a limit has been imposed on the terms of the payment, said an official at parent company Nippon Mining Holdings Group.
"We reached an agreement on September 24," the official said.
BHP had initially sought scr...........apping of the price participation clause, which takes into account fluctuating copper prices, currently trading at strong levels, prompting protests from Japanese smelters.
Copper is trading at around $US7,325 a tonne on the London Metal Exchange, down from an all-time high of $US8,800 marked in mid-May but still about 60 per cent above levels at the beginning of the year.
The price participation scheme gives smelters the right to receive a higher fee for processing concentrates, the raw material, when copper prices are high.
Dropping the clause would have led to a reduction in the processing fee, a major revenue source for Japanese smelters.
Smelters receive less when copper prices are low.
Under previous deals, Pan Pacific was entitled to received 10 per cent of the difference if the price of copper stayed above a base price of 90 US cents a pound, on top of the treatment and refining charge.
The latest deal raised the base price to 120 US cents and set a cap at 180 US cents.
"We are not happy with changes made to the price participation clause, but at least it has been retained," the official said.
Japanese industry officials have referred in the past to pressure from BHP to try to drop or revise the price participation scheme, but this year's negotiation appears to represent one of the global miner's strongest attempts yet to achieve that.
BHP may have felt itself to be well placed to pressure Japanese smelters this year as tightness in concentrate supply has put global miners in a strong negotiating position, industry sources said.
Scarcity of concentrate supplies forces smelters to compete to secure sufficient volumes of the raw material.
A 25-day strike at Chile's Escondida mine that ended on August 31 caused a cut in production.
Copper processing fees are down sharply from last year.
Japanese smelters won record high fees of about $US115 a tone for treating and 11.5 US cents a pound for refining copper concentrates for the one-year period starting from July 2005 on the back of ample availability.
Nippon Mining said it has also reached an agreement on mid-year contracts with Teck Cominco Ltd's Highland Valley operation in Canada and Papua New Guinea's Ok Tedi Mining Ltd.
The official said the price participation clause has been kept in deals with both companies but declined to elaborate.
Industry sources say negotiations for calendar 2007, which typically begin in early October, are likely to be equally tough.
Nippon Mining holds a majority in Pan Pacific, but Mitsui Mining and Smelting Co Ltd also holds a stake in the company, which is a leading copper producer.
Leading Japanese copper smelters also include Sumitomo Metal Mining Co Ltd, Mitsubishi Materials Corp and Dowa Dowa Mining Co Ltd