Chinese smelters expect supplies of copper concentrate to rise as early
as late 2012, paving the way for higher charges, as neighbouring
Mongolia's Oyu Tolgoi copper and gold mine starts to come onstream,
industry sources said on Tuesday.
That
may prompt Chinese smelters to raise term treatment and refining charges
(TC/RCs) requirements for 2012 after they won a more than 50 percent
on-year increase to $72 a tonne and 7.2 U.S. cents a pound for the first
half of 2011 and $90 and 9 cents for the second half.
Oyu
Tolgoi, the world's largest undeveloped copper and gold project located
80 kilometers (47 miles) north of the Mongolia-China border, is 66
percent owned by Canada-listed Ivanhoe Mines Ltd .
The
government of Mongolia holds the remaining share. Global miner Rio Tinto
presently holds a 46.5 interest in Ivanhoe Mines, according to the
Ivanhoe website.
"The
startup (of Oyu Tolgoi) may help improve the concentrate shortage in the
Chinese domestic market," Yang Changhua, senior analyst at state-backed
research firm Antaike said.
TC/RCs
are paid by overseas sellers to Chinese smelters for converting
concentrate imports into refined metal and deducted from concentrate
sale prices based on London Metal Exchange copper prices .
Higher
charges, typically seen when supply rises or demand falls, cut
concentrate import prices.
Spot
copper concentrates changed hands at TC/RCs of around $85 and 8.5 cents
to China in the past two weeks versus around $100 and 10 cents in June.
LOCATION MAKES CHINA NATURAL BUYER
China's
location makes it a natural buyer for Oyu Tolgoi concentrates, which are
now being offered to Chinese smelters for term contracts starting in
2013, traders and Chinese smelter sources said at a delivery point on
the border with Mongolia near the Chinese city of Baotou.
The
mine is set to start production tests in June 2012, with Chinese buyers
expecting some spot concentrate sales in the fourth quarter of 2012.
Commercial production is scheduled to start in the first half of 2013.
Spot
concentrates typically are ad-hoc and offered only when they are
available, compared to planned term sale.
"Oyu
Tolgoi presently is under full-scale construction and is on course to
become one of the world's largest copper-gold-silver producers," Ivanhoe
Mines said in an email to Reuters.
"While
present estimates anticipate the delivery of first ore from the open-pit
mine to the concentrator during 2012, no sales commitments are being
made for any potential production from the new mine in 2012."
Antaike's Yang said the mine output will not be sufficient to cover
China's concentrate deficit, adding that Chinese smelters may still use
the anticipated additional supply from Oyu Tolgoi as a bargaining chip
to demand higher term TC/RCs in 2012.
Yang
said apart from Oyu Tolgoi, some other new copper mines were also
expected to come onstream in 2013, adding supply to the global market.
Chinese
smelters typically hold the first round of term TC/RCs talks with
international trading firms and global miners such as Freeport-McMoRan
Copper & Gold and BHP Billiton during the LME Week in October and settle
the charges a few weeks before the delivery year starts.
TERM
OFFERS
Industry sources said six large-and medium-sized Chinese copper smelters
were in talks with Rio Tinto for 3-year term contracts for concentrates
to be produced by the Oyu Tolgoi mine.
Three
international trading houses were also bidding for contracts, one
Chinese smelter source said.
Nine
bidders were in the second round after at least four Chinese smelters
had left in the first round, two sources who are familiar with the talks
said.
"We
have not been told when the result will come," said one of the two
sources.
Source:
Reuters |