London (Platts)--27Nov2012/752 am EST/1252 GMT

Treatment and refining charges for copper are set to trend higher in the face of increased supply and reduced demand, German copper producer Aurubis said Tuesday.

"Although the annual negotiations have been difficult due to the fact that the negotiating positions of mining companies and Asian smelters diverge, the trend towards higher TC/RCs continues in spot business," Europe's largest copper producer said in its latest Copper Mail report, adding that smelters are currently calling for TC/RCs of $80/mt and 8 cents/lb.

TC/RCs, the fees charged to miners by smelters to treat and refine their copper concentrate to produce copper metal, typically rise when concentrate supply is ample and fall when supply is tight.

Additional concentrate supply so coming onstream, Aurubis noted, pointing out that at the beginning of November it was announced that the giant Oyu Tolgoi copper mine in Mongolia will start up production in less than three months now that an energy supply contract has been signed with China. Con-tract negotiations had led to delays.

"When the project has reached its complete output, Oyu Tolgoi will be one of the five largest copper mines in the world with estimated reserves of 41 billion lb of copper and 21 million oz of gold. Its annual concentrate output will be 470,000 mt of copper concentrate in full operation," Aurubis said.

Meanwhile, the Salobo project in Brazil started production following delays, and the first concentrates have been shipped, Aurubis said, adding: "Both of these announcements highlight the modified situation on the copper concentrate market." Furthermore, a number of maintenance standstills at smelters in 2013 "will reduce demand and intensify the trend towards higher TC/RCs," the company said, adding: "Aurubis is planning a longer maintenance standstill for fall 2013, which will lead to a demand shortfall of about 150,000 mt of concentrates alone."

DEMAND STABLE

With negotiations for 2013 annual copper contracts underway, "the premium structure for the coming year shows that demand on the copper market is definitely stable," Aurubis said.

The company went into annual negotiations with a cathode premium of $86/mt plus LME cash, unchanged from this year, while Chile's Codelco announced a premium of $85/mt for Europe, down $5.

"For China, discussions will take place during the Asian CESCO meeting taking place on November 28-29 in Shanghai," Aurubis said.

Market sources told Platts Monday that Codelco, the world's largest copper producer, had officially set its 2013 China contract premiums at $98/mt -- down from $110/mt in 2011 -- although selling is said to be being concluded as low as $95/mt.

Codelco would not comment on the market talk.

The copper market "is currently in a phase that will be influenced by the upcoming year-end period," Aurubis said. "Physical transactions are limited at the moment. Planning is cautious and relies on flexibility in cathode delivery."

Although the eurozone's economic performance is expected to remain subdued "there will still be a basic level of copper demand," the company said. "Europe is still a net importer of cathodes, and copper inventories in the LME ware-houses remain low."

European copper product demand remains weak due to the economy, but "the downturn appears to have stopped and it is apparent that business is stabilizing," Aurubis said, adding that spot business is quiet, with the market focused on negotiations regarding 2013 annual contracts.

--Andy Blamey, andy_blamey@platts.com

--Edited by James Leech, james_leech@platts.com

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