In early August, BHP Billiton reached a mid-year TC/RC agreement with Sumitomo Metal Mining Company and Pan Pacific Copper Company at a level slightly below USD 45/mt (USD 0.045/lbs).
Traders said the agreement made with the two companies contains side terms which may involve changes in payment items or quotation periods, which would in effect lower prices. 

The agreements are close to the 2008 annual TC/RC agreements of USD 45/mt (USD 0.045/ lbs), but the price levels are much higher than BHP’s initial mid-year agreement with Japanese smelters, which were settled at around USD 35/mt (USD 0.035/lbs). 

Traders said the settlements are much higher than market expectations.  They also originally believed a supply shortage of copper concentrate would worsen during 2Q, but failed to materialize due to waning demand in China, leaving Chinese smelters on the sidelines.

Domestic market players were not surprised by the BHP TC/RC agreement with Japanese smelters, but felt the settlements were not ideal.  The initial offers from the Japanese were USD 50-60/mt (USD 0.05-0.06/lbs), but was difficult to uphold as the existing copper concentrate market is a seller’s market.  The settlements will likely have a negative impact on Chinese smelters’ TC/RC negotiations with BHP at the end of 2008, and it remains to be seen as to whether that agreement will exceed Japanese settlements with BHP. 

Sources reported inventories at domestic copper smelters were mixed, with 50% of smelters holding ample stocks.  If this is the case, domestic copper smelters will likely reduce spot purchases during 3Q and 4Q.  However, high sulfuric acid prices could offset losses from low TC/RC, but sulfuric acid prices have been falling.  According to CBI data, sulfuric acid prices fell to RMB 1,525/mt last week, from RMB 2,025/mt during June, a drop of 25%.  Therefore, high inventories of copper concentrate and declining sulfuric acid prices are two positive factors in favor of smelters during the next TC/RC negotiations. 

Negotiations will mainly depend on sellers and buyers’ outlooks for the remaining 2008 copper concentrate market.  Some unforeseen factors may also impact negotiations, such as industrial labor action in the copper ore sector, or production cuts at smelters during 2H08.