Codelco's China customers baulk at copper premium rollover - sources

Nov 3 (Reuters) - Chinese state-run copper buyers have not accepted Chilean copper producer Codelco’s offer to roll over the price premium for metal deliveries in 2021, three sources with knowledge of the matter said this week.

The premium, which is paid on top of London Metal Exchange (LME) copper prices for physical delivery of copper cathodes and is a widely watched industry benchmark, has been at $88 a tonne since 2019. China, the world’s biggest copper consumer, is Codelco’s most important market.

Codelco offered clients in Beijing - including China Ordins Group and China Minmetals Corp - the same $88 premium for 2021 last week, according to two customer sources and a Codelco source, but none of them has so far agreed to take supply at that price next year.

“The offer is much higher than the current market level. Buyers don’t agree,” said one customer, who declined to be identified because of the sensitivity of the matter. He put the current market level at a premium of about $50 per tonne.

Codelco said it would not comment on the premiums. A Minmetals spokesman was unaware of the Codelco offer, while Ordins did not immediately respond to a request for comment.

Even as China's copper imports have boomed this year, propelled by an open arbitrage between Shanghai and LME prices following the coronavirus outbreak, another pricing indicator - the Yangshan copper premium SMM-CUYP-CN - has plummeted.

This premium, paid on top of LME prices to import copper through the Yangshan bonded warehouse zone in China, last week fell to $49 a tonne, its lowest since May 2019, indicating a decline in physical copper demand. It was above $110 in May this year.

A second customer source described Codelco’s offer as “very high” and said negotiations may be revisited in one to two weeks, although he noted Codelco does not normally adjust its offer.

A third customer source, who works for a longstanding buyer of Codelco cathodes but has not yet received the offer, said a premium below $80 would be more reasonable.

“If they don’t like it ... we will sell less (on term contracts) and more on spot,” the Codelco source said. “But the number won’t change.”

In the meantime, cathode users can draw on bonded inventories SMM-CUR-BON, which have risen to a 14-month high ahead of the launch of bonded copper futures in Shanghai this month.

Reporting by Tom Daly; additional reporting by Fabián Andrés Cambero in Santiago; editing by Shivani Singh and Christian Schmollinger