Higher processing fee trend won't last

CHINESE copper smelters are securing higher processing fees from miners, but analysts said this trend may not last in the long term because of oversupply in smelting capacity and tight inventories of copper concentrates.
Tongling Nonferrous Metals, China's second-largest smelter, said on Wednesday it had agreed to US$72 a ton for treatment charges and 7.2 US cents a pound for refining charges, known as TC/RC in the industry, with BHP Billiton for the first time this year, up 54.8 percent from 2010. It will renegotiate with BHP the TC/RC for the second half.
Industry sources said other smelters, including Jiangxi Copper Co, are aiming to secure similar charges.
The TC/RCs are paid by miners to smelters in China, Japan and elsewhere and deducted from the final sale price based on London Metal Exchange copper prices. Typically the fees rise amid increasing concentrate supplies or falling operating smelting capacity.
Though the rebound in TC/RC will improve profit margins for Chinese copper smelters, which depend on imports for 80 percent of their concentrate needs, it may not last because in the long run "the rise in TC/RC will be curbed as miners maintain the bargaining chip," Ge Jun, an analyst at Changjiang Securities, said.
The latest rise in fees was partly attributed to China shutting down smelting capacity in the second half of 2010 as local governments attempted to meet year-end energy efficiency target, but the problem of overcapacity remains, Ge said.
Copper concentrate supplies are also going to be tighter due to lower grade of copper mines and limited number of new projects.
Shenzhen-listed Tongling said it may import 40,000 tons of copper concentrate in the first half from BHP, compared with 46,000 tons in the same period a year earlier.
Source:Shanghai Daily