Cochilco expects copper ore supply to remain tight

Chilean copper commission Cochilco expects copper ore supply to remain tight in 2008 after nearly 1 million tonnes of output was lost in 2007.

BEIJING (Reuters) - 

Copper ore supply is expected to stay tight in 2008 with high prices as the market remains vulnerable to mining disruptions, a senior official with Chile's state copper commission, Cochilco, said on Wednesday.

Cochilco has factored in nearly half a million tonnes of lost output in its global projections for 2008, after nearly 1 million tonnes of originally expected output was lost in 2007, said executive vice president Eduardo Titelman.

However, too little mine supply and too much smelting capacity means copper smelters competing for feedstock will see the treatment and refining fees paid by miners -- known as TC/RCs -- fall further, and stay low for the next few years, he told Reuters in an interview in Beijing.

"TC/RCs are already very low, and the trend is that they will keep as low as this and probably even lower," Titelman. said, adding that the situation would continue for "at least a couple of years."

"In our country, that is good news for the small miners, which bring minerals to the smelters and can get low costs for processing them."

Cochilco earlier this month revised up its forecast for 2008 copper prices to $3.10 a pound. The projection for 2007 is between $3.20-$3.30 a lb.

It expects growth in apparent Chinese consumption of 5 percent to help maintain strong prices, despite slower economic growth that will ease U.S. apparent consumption by 0.5 percent.

Its forecasts carry weight as Chile produces about one-third of the world's copper.

Copper smelters receive TC/RCs, from miners to process their ore. Higher fees reflect a shortage of smelting capacity.

Term fees are at $60 a tonne and 6 cents a pound this year, but miners are asking below $40 a tonne and 4 cents a pound. Too much smelting capacity in China has already stripped away the price participation benefit, wherein smelters got additional profits as refined copper prices rose.

The period of low fees could last longer since most smelters would be unwilling to throw in the towel, choosing instead to keep running at or even just below their marginal costs, he said.

"Smelters have very intensive investment and very large fixed costs. Everybody has the incentive to try and keep going on, in spite of the bad situation, with the expectation that when the market will turn they can recuperate their investment."

STRIKES

This year, output disruptions -- including strikes in Chile -- helped fire up copper futures <MCU3> after they retreated from an historic peak of $8,800 in May 2006. Strikes in Chile contributed to about 10 percent of the lost production, Titelman estimated.

Chile's subcontract workers are agitating for a greater share of the country's copper boom, in a development that threatens to shake up the system of labour dispute negotiations between unions and mine owners.

Subcontract workers launched a dispute against Chilean state copper miner Codelco in June and July of this year.

"We trust in our system. We have a very well structured legal system organizing the negotiations, ordering them, including all the negotiations between workers and employers," Titelman said.

"It's worked well, but last year we had one case in which we have seen that we need to improve that framework," he added, referring to the subcontractors' strike.

He said he hoped labour action would not increase drastically during elections next year.

Chile is hoping for more Chinese investment, including deals where Chinese might supply mining equipment.

Chinese state trading firm Minmetals in 2005 signed a long-term copper purchase agreement with Codelco including an option to buy into the Gaby mine, once it begins production next year.

(Reporting by Lucy Hornby, Editing by Veronica Brown)

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