London 01/11/2016 - Codelco is committed to being "reasonable" with its 2017 copper premium offer to China and will lower the benchmark to a level that is closer to the spot market, senior commercial vice-president Rodrigo Toro told Metal Bulletin.
"We will try to be reasonable for next year - there will be a big change in China. We can't have another year of annual premiums being well above the spot market," he said in an interview during LME Week here on Tuesday, November 1.
"The end of the copper financing [boom in China] has changed the market entirely," he added.
Toro declined to comment on the premium level for 2017 but Metal Bulletin understands the number will be between $70 and $75 per tonne on top of LME cash prices on a cost, insurance and freight (CIF) basis.
This would be a sharp reduction from the 2016 level of $98 per tonne and would bring the benchmark closer to the spot market.
Spot Shanghai premiums were at $70-80 per tonne on Tuesday, with the recent spike capped by the closure of the arbitrage window. The spot market in Shanghai has averaged $60 so far this year; analysts see little scope for improvement into next year due to oversupplied conditions and the collapse of financing demand since the Qingdao warehouse fraud scandal of 2014.
Codelco's benchmarks in China in 2014 and 2015 were $138 and $133 per tonne respectively compared with annual spot market averages of $107 and $79 in those years.
"Our intention was never to be higher than the spot market - it just happened to be that way," Toro said.
The Chilean copper producer sees a year of balanced supply and demand in 2017, with prices averaging higher than in 2016.
"The market is better than people think - demand is there and we have copper enquiries. But there are cathodes to supply the demand," Toro noted.
Next year could also be the first with a benchmark copper premium in China that is lower than that in Europe. Codelco last week lowered the premium at which it will sell cathodes to its European customers next year by 11% to $82 per tonne on a CIF Rotterdam basis.
Codelco also cut its 2017 premium offer to North American customers to 2.5 cents per pound CIF Panama City, Florida, or 5-6 cents delivered to the Midwest, which is about a half a cent lower than this year.
The premiums for Taiwan and South Korea should be lower than in China, Metal Bulletin also understands.
Codelco sells 35% of its cathodes production to China, 15% to the rest of Asia, 20% to Europe, 20% to the US and 10% to South America.
(Editing by Mark Shaw)