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Codelco is offering package sales by selling LME-registered and off-grade copper together to downstream customers, and these are subject to further negotiations, Metal Bulletin understands from several market sources.
The Chilean producer agreed a 2014 annual benchmark of $138 per tonne early last week for cif Shanghai premiums. This sets the basis for the other producers and buyers to strike individual deals above or below the benchmark, based on factors including volume, brand and duration.
“[The] $138 is misleading and this number only serves as a benchmark,” one large international trader told Metal Bulletin.
“Currently Codelco is offering package contract to some relatively smaller players: for example, you take say 2,000 tonnes of grade A then you have to take 500 tonnes of off-grade and this is being offered at a discount of $50-60 to the grade A,” the trader said.
A source from one Chinese trading firm who directly purchases for downstream plants confirmed receipt of this package offer.
“In their general offer, how many tonnages for each category are not specified, and the final premium will depend on the percentage the off-grade takes. $138 will be a benchmark, the high brands will add numbers and off-grades will deduct. As we don’t accept off-grade, contract signing is pending.”
Some market participants were surprised by talk of bundling the off-grade material, with one saying “off-grade copper is very popular in the market”.
Other deals The Chinese trading source also told Metal Bulletin that Freeport offered cif premiums with a $10-20 discount on the benchmark, for LME-registered SX-EW copper cathode material.
“Even though Freeport only offers SX-EW copper, we consider this offer price to be reasonable. Final agreement will be reached soon,” he added.
Other copper suppliers are said to be offering short-term contracts other than one year, partly in order to take advantage of high spot terms now.
“A lot of offers are on quarterly and a lot on spot,” two sources from an international trading house said. “For example Antofagasta is offering Q1 basis at $10-15 over the $138 Shanghai cif. More deals being done on shorter terms compared to last year as the spot premium is higher.”
The spot premium cif Shanghai is currently trading at about $195 per tonne.
Some traders who are signing up long-term contracts have already started offering the top brands of metal at premiums higher than the $138 per tonne number.
One smelter-based trading source said: “The annual premium for the three top brands will range $155-$160; for specified LME-registered brands, around $150. Our smelter will also send out long term offers to downstream buyers and our number will be higher than Codelco’s $138.”
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Shivani Singh shivani.singh@metalbulletinasia.com Twitter: @ShivaniSingh_MB