Bareksa.com - European copper smelters are looking to raise raw material processing fees by 20 percent next year, as spot smelting charges race to 10-month highs on rising supplies and a recovery in output from Indonesia, trading sources said.

Treatment and refining charges (TC/RCs) are paid by miners to smelters to refine concentrate into metal. As the supply of concentrate increases, the demand for smelting capacity and the charges also rise, translating into higher profits for smelters.

Large copper smelters around the world are expected to seek as much as around $105-115 a tonne and 10.5-11.5 cents a pound for next year's TC/RCs, compared with $92 a tonne and 9.2 cents a pound agreed for 2014, when they meet with miners during London Metal Exchange (LME) Week, which begins on Oct 20.

Smelters in China, which has the world's largest concentration of smelting capacity, are also likely to ask for as much as $115 a tonne and 11.5 cents a pound.

Fuelling talk of higher TC/RCs are expectations for a surplus in the copper market this year and next, and a resumption of raw material exports from major producer Indonesia, which have pushed spot charges to around $112 a tonne and 11.2 cents a pound, their highest since the beginning of the year.

"There is a flood of concentrates coming from Indonesia at the moment and smelters are more than well covered with material. Any additional material that isn't immediately sold to a buyer is only going to induce TC/RCs to incline further," a trading source said.

"I wouldn't be surprised if spot TC/RCs rise to $150 a tonne and 15 cents a pound in two or three months as things are moving quite quickly. For the annual deals I expect them to agree at around $115 a tonne and 15 cents a pound."

While the negotiations for next year's TC/RCs will begin during LME Week, an annual gathering in London of the global metals industry, miners and smelters are likely to settle the 2015 benchmark charges later in the year.

LOOMING OVERSUPPLY

Newmont Mining Corp sent out its first copper concentrate shipment from Indonesia in late September, while the country's largest producer Freeport-McMoRan resumed shipments in early August, to end a multi-month hiatus after Indonesia imposed a hefty export tax earlier this year.

A Reuters poll in July showed analysts expect the copper market to be in a 226,000-tonne surplus by the end of 2014, with the surplus rising to 285,000 tonnes in 2015.

Setting the tone for yearly negotiations, Japan's Pan Pacific Copper (PPC) said it wants to raise TC/RCs by more than 9 percent to over $100 a tonne and 10 cents a pound.

"I think they were quite modest with the $100 a tonne figure. The real impact of the additional material is only being felt right now and in coming months there will be more exports from Indonesia," a second trading source said.

Market sources said there was an increase in non-standard concentrates with high by-product impurities, particularly arsenic, entering the market from Codelco's Ministro Hales mine in Chile and Chinalco's Toromocho mine in Peru.

Smelters are expected to command significantly higher charges to blend "dirty" concentrates with "clean" material that contains no more than 0.2 percent of arsenic.

"For many years smelters didn't have many options to choose from. And now with the mixed concentrates coming into the market they have greater choice which means a bigger influence on treatment charges," the second trading source said.

To cope with the rising supply of high impurity material, at least one large state-owned Chinese copper smelter is considering building a blending facility to mix low grades with clean, standard concentrates, two industry sources said.

Xiangguang Copper, China's biggest private smelter, currently runs a blending facility in the northeastern port city of Qingdao, three sources said. (Source : Reuters)