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:: Rio Tinto Forced to Buy Spot Copper Concentrate for U.S. Smelter
Rio Tinto Ltd has started scouting the North American spot market for copper concentrate for its Kennecott copper smelter in Utah as it tries to recover from a devastating landslide at its nearby mine, sources said. Rio has been forced to look for third-party concentrate for Kennecott, its largest copper smelter and the second-largest copper producer in the United States, after a devastating landslide last month shuttered the company's nearby Bingham Canyon mine, four sources familiar with the matter said. Bingham supplies Kennecott with concentrate, an intermediate product that smelters use to make refined metals.
Rio restarted delivering ore to its concentrator on April 27, but it has warned it will lose 150,000 tonnes of mined output and 100,000 tonnes of metal due to the landslide. That is equivalent to 92 percent of Kennecott's mined output last year and 61 percent of its metal production.
According to early plans, the company wants to partially offset the loss of internal feed by buying 30,000 dry tonnes of third-party concentrate each month from June until October, four traders with knowledge of the matter said.
While that is not significant tonnage for the global concentrate market, and Kennecott does sometimes use third-party feed, such large purchases over a prolonged period are rare, traders said. "It supplements the small amount (of concentrate) they're producing themselves so the smelter can operate at a reduced capacity. At least it's producing some metal," said a trader familiar with the matter.
A spokesman confirmed the company is looking for new concentrate supplies, but declined to comment on contracts under discussion as they are commercially confidential. "With reduced volumes, we have said that we would be seeking additional sources of concentrate for the downstream operations to supplement internal concentrate production," the spokesman said in an email.
Last month, Rio issued "force majeure" notices on copper cathode sales, warning customers that supplies would continue in the short term, but the timing of future shipments was uncertain. That remains in place, the spokesman said on Monday.
After securing an initial quantity of raw material in recent weeks, Rio is now assessing availability and the logistics of buying more in the United States and Canada.
Some traders questioned whether there would be enough spot material available given that most smelters tie up their needs with miners or traders in annual contracts. The entry of a major regional smelter in the spot market for at least six months could also put pressure on the fees paid by miners to smelters to process copper concentrate into metal, some traders said. "There's just not enough material," said a second U.S. trader.
Some played down the impact while India's biggest smelter owned by Sterlite Industries is shut and is not buying concentrate. Spot treatment and refining charges (TR/RCs) have risen since the closure. The global benchmark for annual contracts for 2013 is $70 a tonne and 7 cents a lb, up 10 percent from last year.
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