* Codelco term offers down 26 percent from 2015
* Unexpected low offer underscores weak Chinese demand -trade (Adds comments)
By Polly Yam
HONG KONG, Nov 16 (Reuters) - Chile’s Codelco, the world’s top copper producer, has slashed its 2016 premium to China for the refined metal by more than a quarter to a three-year low, traders said on Monday, the latest sign of weakening demand from the market’s biggest buyer.
In a move that will deepen concerns about waning consumption as growth in the world’s second-largest economy slows, Chile’s state-owned miner Codelco offered a premium of $98 per tonne for 2016 term shipments, down from $133 per tonne this year,
Codelco’s premiums, which buyers pay on top of prices on the London Metal Exchange (LME) to secure physical copper, are viewed as a benchmark for global contracts, and other producers are likely to follow suit.
Traders and buyers in China, who had expected premiums to be cut to about $105-$110, were shocked at the drop that was the biggest in percentage terms since the global financial crisis.
This underscores a bleak outlook for LME prices which are currently mired at six-year lows, while also stoking worries that production cuts have not been enough to whittle down global inventories and reinvigorate demand.
“We are surprised, and the offer is quite low,” said a trader at an international trading firm.
“It could change the game, as buyers need to think how much they should buy, not how little.”
Codelco was not immediately available for a comment.
The news will be a talking point at the Asia Copper week, an industry conference to be held in Shanghai later this week.
The trader said many Chinese buyers had planned to reduce 2016 term shipments if Codelco’s offer was higher than $110 but now they can book more due to the lower-than-expected offer.
However, alongside slowing economic growth, tight credit and ample domestic inventories may limit their appetite.
“This would suggest that Codelco is doing this to protect their market share as the Chinese will not pay the higher premiums,” said Malcolm Freeman of Kingdom Futures.
“This in turn will put pressure on all the other producers and no doubt will spill over into the European market.”
Codelco had been expected to cut Chinese premiums after it reduced surcharges to European customers by 18 percent to $92 a tonne, but only few market participants had expected it to be lower than the $105 that Chinese buyers were offered to secure metal from Japan.
The premium is higher than the $80-$90 a tonne seen on spot imports recently.
Additional reporting by Melanie Burton in Melbourne; editing by Josephine Mason, Tom Hogue and Himani Sarkar