Hong Kong, 5 July 2011: Reuters

China's refined copper output may rise in the second half of this year from the first six months, boosted by high treatment and refining charges, industry sources said on Tuesday. Strong prices for sulphuric acid, a byproduct of copper smelting, would also prompt higher output, which could lead to less import of refined metal in the fourth quarter, they said.

Treatment and refining charges (TC/RCs) received by Chinese smelters for the second half have gained 25 percent over the first half and almost doubled from 2010 to $90 a tonne and 9 cents a pound. TC/RCs for spot concentrate imports were also strong at $70-$90 and 7-9 cents now, versus $15-$20 and 1.5-2 cents a year ago, traders said.

TC/RCs are paid by overseas sellers to Chinese smelters for converting concentrate imports into refined metal and deducted from concentrate sale prices based on London Metal Exchange copper prices . Higher charges, typically seen when supply rises or demand falls, cut concentrate import prices.

"Production would be higher in the second half mainly due to high TC/RCs," said Fu Bin, an analyst at Jinrui Futures, a subsidiary of top smelter Jiangxi Copper Corporation. China, the world's top copper consumer, does not produce sufficient copper concentrates and imported 2.35 million tonnes in the first five months of 2011, down 15 percent on the year.

A trading manager at a copper smelter in the east said many large Chinese smelters held one-year contracts with international trading firms for 2011 and contracted imports would rise in the second half. Fu said strong prices of sulphuric acid, a byproduct of copper smelting, would also encourage smelters to make more.

Domestic prices for sulphuric acid used in the manufacturing of fertilizers rose more than 60 percent in the past year to above 600 yuan ($93) per tonne, traders said.

REFINED COPPER OUTPUT

Jinrui's Fu said he expects refined copper output to reach at least 5.3 million tonnes in 2011, from 2010's 4.79 million tonnes. Based on Fu's estimate, China's monthly refined copper output could reach 447,000 tonnes between June and December, which will be a near 2 percent rise from May's 439,000 tonnes.

Yang Changhua, an analyst at state-backed research firm Antaike, said he may raise his 2011 refined metal output estimate of 5.1 million tonnes, a figure he revised up in May from 4.95 million tonnes. China's power shortages are no longer a concern for copper output in the summer, Yang said, citing an increase in the supply of hydroelectricity.

Pan Qifang, spokesman for Jiangxi Copper , said the firm would run full rates in the summer and maintained 2011's output plan of 940,000 tonnes, a rise of 4.4 percent from 2010. "Imports (refined copper) should slow in the fourth quarter because of high production," said Peng Qiang, an analyst at Cofco Futures in Beijing. Peng said he expected refined imports to rise between July and September as China builds stocks after imports dropped 33 percent in the first five months and bonded stocks halved between April and June.

SCRAP

But supply of copper scrap, an alternative raw material used to produce refined copper, would be crucial for a rise in output in the second half as scrap-feed capacity increases, analysts said. Jinrui's Fu said more than 500,000 tonnes of new capacity that use scrap as feed would come on stream in the second half of 2011, boosting demand for scrap imports.

"Finding scrap will be harder in the second half than the first half," Fu said. He added that scrap stocks in China had fallen and supply was tight now due to lukewarm imports this year. He did not provide a figure. But scrap importers were still not keen to book large imports because of high current LME copper prices, which determine scrap prices for Chinese imports, Fu said.

China imported 1.77 million tonnes of copper scrap in the first five months, up nearly 6 percent on the year versus a 15 percent yearly rise in the corresponding year-ago period. Antaike's Yang said over 1.9 million tonnes of refined copper would be made from scrap in 2011, compared to nearly 1.8 million tonnes in 2010. ($1=6.463 yuan).

Ends --