BHP may cut copper treatment charges

Copper treatment charges may fall as much as a third as BHP Billiton, the world's largest mining company, leads talks with Asian smelters competing for dwindling supplies of concentrate, according to Citigroup.

BHP indicated it wanted to cut the treatment charge to $40 a tonne and the refining charge to 4 cents a pound, from $60 and 6 cents, analysts from Citigroup led by Alan Heap said in a report. BHP is leading producer talks with Japanese, Indian and Chinese copper smelters that started last month.

Mining companies, including BHP, were last year successful in reducing fees paid to smelters as well as ending a 30-year-old so-called "price participation'' clause allowing smelters to benefit from rises in copper prices. Spot treatment charges had fallen to a three-year low as concentrate supply shrinked and smelting capacity expanded in China, Citigroup said.

"BHP Billiton was spectacularly successful last year in reducing total fees paid by miners to smelters by about 70 per cent with the removal of price participation,'' Citigroup, the biggest US bank, said in the June 1 report. The company "looks set to again capitalise on a favourable market'', the analysts said.

The price of the metal has risen 23 per cent this year, helping to boost profits for producers such as BHP and Codelco, the world's largest producer. Samantha Evans, a spokeswoman for BHP, said the company did not comment on rumour and speculation.

Smelters are opposed to the cut and have suggested a rollover in prices. Treatment and refining charges for copper sold on the spot market had recently dipped to $20 a tonne and 2.2 cents a pound, Citigroup said.

Treatment and refining charges might rebound this year, Jiangxi Copper Co, China's second-biggest producer of the metal, said in April. Higher copper prices had spurred demand for scrap metal as an alternative and might help drive an increase in charges, Jiangxi said.

Growth in China's production of refined copper might slow this year as the government took actions against excessive investment in smelter capacity, Jiangxi Copper said. The amount of copper recycled from scrap worldwide in 2006 increased 7 per cent over the previous year, the company said, citing figures from the International Copper Study Group.

Smelters pay miners an agreed base price for the metal contained in the raw material minus treatment charges, which are adjusted each year to reflect costs and the outlook for supply and demand.

Treatment and refining charges relate to the process of turning copper ore and concentrates into the refined metal.