December 20, 2018 / 8:23 AM / 8 months ago

Codelco agrees three-year 'evergreen' deals with clients in strategy overhaul

LONDON/BEIJING (Reuters) - Chilean state miner Codelco has agreed to sell France’s Nexans (NEXS.PA), China’s Minmetals and U.S.-based Southwire 50,000 to 100,000 tonnes of copper each from 2019 to 2021 in rolling deals known as “evergreens”, sources close to the matter said.

The logo of Codelco, the world's largest copper producer, is seen at their headquarters in downtown Santiago, Chile March 29, 2018. REUTERS/Ivan Alvarado

The contracts - which roll annually, meaning that from 2020 they would be extended for three years until the end of 2022 and so on, if both parties agree - mark a change in tactics at Codelco, which typically sells copper through annual deals.

The move towards evergreens will allow the company to lock in cash flow from larger clients for future years. At London Metal Exchange prices CMCU3, 100,000 tonnes of copper is currently worth $600 million, plus any premium that may be negotiated.

“Deals with Chinese consumers are probably among the largest,” one source said, adding that Asia, including number one metals consumer China, accounts for about 50 percent Codelco’s global sales.

The shift is part of a strategy overhaul by Codelco’s new Chief Commercial Officer Roberto Ecclefield, who was appointed in March, according to one source.

The new strategy also includes selling less to some counterparties including commodity traders, which involves a lot of administrative work and costs without commensurate reward, sources said.

One source said Codelco is in the process of negotiating a three-year deal with metal wholesaler China Ordins.

Another source said a unit of China’s Jiangxi Copper had signed a one-year deal with Codelco for copper concentrates, saying a three-year deal “has no obvious advantages”.

A Codelco spokesman said he could not comment on specific contracts, but added that the state-owned miner had pivoted to focus on customers who required higher volumes.

Southwire and Nexans did not respond to repeated emails for comment. Minmetals was not immediately available for comment.

Jiangxi Copper and China Ordins declined to comment.

Codelco, the world’s largest copper miner, accounted for 1.734 million tonnes of global supplies last year, about 7 percent of the total estimated at about 23 million tonnes.

Typically supply contracts are agreed annually for the next year during what is known as “mating season” in October and November when producers and consumers agree quantities and premiums above the London Metal Exchange benchmark price.

But many companies are keen to lock in longer-term supplies due to concern about looming shortages created by a lack of new projects, deteriorating ore grades and healthy demand growth in the power and construction industries.

“We are focusing on the good clients who have an end-user market,” another source said.

Reuters in October reported that Codelco was in talks to sell up to 60,000 tonnes of copper a year to China Minmetals from 2019 to 2021.

Premiums will still be agreed annually, normally in October and November, sources say.

Codelco agreed some deals with premiums at $98 for European customers for next year. Some Chinese customers have agreed to pay $88 a tonne and other Asian clients have $83 a tonne.

Copper prices on the LME CMCU3 at around $6,000 a tonne are down about 18 percent since early June, but up from the 14-month low of $5,773 a tonne hit on Aug. 15.

Reporting by Zandi Shabalala, Tom Daly and Pratima Desai; Editing by Jan Harvey and Adrian Croft

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