Asian smelters cut output after Grasberg tightens concentrate supply
Wednesday, October 29 2003 - 01:38 AM WIB
With tight global supply, a voracious appetite for raw material by China and India and unprecedently higher shipping costs have also stoked concerns among custom smelters in East Asia about lower processing fees for copper concentrates in 2004.
Pan Pacific Copper Ltd. said on Tuesday in Tokyo that it would cut its estimated copper production for the fiscal year through March by 30,000 metric tons to 530,000 tons, Dow Jones Newswires reported on Tuesday.
The company, a joint venture between Mitsui Mining & Smelting Co. and Nippon Mining & Metals Co., blamed reduced supplies of copper ore for the cuts. A landslide disrupted production earlier this month at PT Freeport Indonesia?s Grasberg open pit mine in Timika, Papua, a supplier to Pan Pacific.
Pan Pacific said it may scale back its production plans even further if the damage from the landslide proves more serious than expected.
Eight persons were killed and five others suffered injuries in the October?s landslide.
PT Freeport Indonesia is owned by U.S.-based Freeport-McMoRan Copper & Gold Inc and the Grasberg deposit, discovered by Freeport in 1988, has the world's largest gold reserves and third-largest copper reserves.
The company had originally planned to produce 560,0000 tons of copper this fiscal year, already 50,000 tons less than the two firms? joint capacity of 610,000 tons.
Nippon Mining?s facilities will now produce 390,000 tons of copper, 20,000 tons less than initially planned, while Mitsui Mining will produce140,000 tons, 10,000 less than planned, the company said.
Given tight global concentrate supply and miners' calls for lower processing fees in 2004, industry sources said other custom smelters in Japan, South Korea and China were likely to follow Pan Pacific Copper's decision.
Three-month copper on the London Metal Exchange was quoted at $2,001/2,004 a ton at 0901 GMT, against $1,987/1,988 at the kerb close on Monday.
LOWER PROCESSING FEES FOR 2004
Pan Pacific Copper's announcement came after Furukawa Co. Ltd halted operations in late August at its loss-making Australian smelter Port Kembla Pty Ltd, which has nameplate capacity of 120,000 tons a year.
The Grasberg copper mine's accident has poured cold water over East Asian smelters' hope for higher concentrate processing fees in 2004 in talks with foreign miners, traders said.
At the first-round talks in October, foreign miners have suggested treatment charges (TCs) at $40-$45 per ton and refining charges (RCs) at 4.0-4.5 cents per lb, while the smelters have asked for over $50/5.0 cents, they said.
These compared with TC/RCs for the 2003 contracts settled late last year at $58/5.8 cents and those for the mid-year deals settled in July at $47/4.7, the lowest in two decades.
Levels below $50 per ton or five cents per lb could put some high-cost smelters out of business because the charges would be lower than operational costs.
Dollar-based TC/RCs paid by foreign miners for processing concentrates into refined metal are an important source of revenues for smelters.
Japan imported 174,000 tons of copper in concentrates last year from PT Freeport Indonesia, which is equivalent to 500,000-600,000 tons of copper concentrates, source said. Japan's imports totalled 1,261,000 tons last year.
LG-Nikko Copper Inc, South Korea's only copper smelter, imports about 1.3 million tons of copper concentrates a year, of which PT Freeport Indonesia sells 100,000-200,000 tons.
Last year, Nippon Mining and Metals Co Ltd, Japan's biggest copper smelter, formed a joint holding firm, Nippon Mining Holdings Group, with unlisted Japan Energy Corp. (*)