Boon for COPPER smelters

Rising processing fees a boon for copper smelters FIRST PUBLISHED: TUE, DEC 10 2013. 07 40 PM ISTProcessing fees are deducted from the LME price of copper before paying the miner, which means higher fees leave behind more profits for the processorCopper smelters have been in demand as ample supplies of copper concentrate are tilting the balance in their favour. This is a cyclical phenomenon that may change course, but till then the going is good for custom smelters. This is not a recent phenomenon as treatment and refining charges (Tc/Rc) had risen in 2013 over 2012, but the pace is set to accelerate in 2014.BHP Billiton Ltd has agreed to a Tc/Rc of $99 per tonne or 9.9 cents per pound to China’s large smelters for contracts for the first half of 2014, a 41% increase over the level set for the second half of 2013, according to aReuters news report.Custom smelters buy copper concentrate from mining companies to process it into finished metal.Processing fees are deducted from the London Metal Exchange price of copper before paying the miner, which means higher fees leave behind more profits for the processor.In India, Hindustan Copper Ltd runs an integrated copper operation, whileSesa Sterlite Ltd and Hindalco Industries Ltd run custom smelting operations. Hindustan Copper’s performance depends more on copper prices which are soft in the current quarter, compared with the preceding quarter. But Sesa’s and Hindalco’s copper business should benefit from rising trends in Tc/Rc.In the September quarter, for example, Sesa’s India copper business earned a Tc/Rc that was 31% higher compared with a year ago and 5.8% higher sequentially. Its copper business saw a 23% increase in segment profits. In Hindalco’s case, segment profit was up by 14% though its output was affected by a planned shutdown.Lower realizations from by-products are countering to—some extent—the benefits from higher processing fees. Still, a sustained increase in processing fees should reflect in the profitability of their copper operations. But this situation may not last forever.Most copper mining companies are terming the surplus situation as temporary and expect a combination of higher demand and decline in ore quality to result in a tighter market situation in 2014. If and when that happens, the tables can turn on the smelters as the balance would then tilt back in favour of the miners.http://www.livemint.com/Money/fqm6yDPl50Xj1FUQJ7wrxM/Rising-processing-fees-a-boon-for-copper-smelters.html