November 15, 2016 / 2:32 AM / 2 years ago

UPDATE 3-Codelco cuts China 2017 copper premium to lowest since 2009

* Codelco cut 2017 China premiums to $72/T -executive

* Pan Pacific Copper to set China premiums near $72/T -president

* Move comes despite soaring copper prices (Adds PPC president outlook)

By Yuka Obayashi

KOBE, Japan Nov 15 (Reuters) - The world’s leading copper producer Codelco has cut its 2017 term premiums to China by more than a quarter, an executive at the Chilean company said, reducing them to their lowest level since 2009.

Japan’s biggest copper smelter Pan Pacific Copper (PPC) also expects its term premiums to China next year to be near Codelco’s offer of $72 a tonne, down 31 percent from this year, its president said.

The cut underlines slower demand growth in China and comes despite the recent rally in the industrial metal prices on signs of economic strength in the world’s biggest copper consumer.

Codelco’s senior commercial vice president Rodrigo Toro, speaking on the sidelines of a conference on Tuesday, said the company had set next year’s premium for physical delivery of metal in China at $72 a tonne over the London Metal Exchange benchmark <0#CMCU:>.

That is down from $98 a tonne for this year’s contracts and the lowest since 2009, Reuters data shows.

Traders said it was the first time that Codelco’s premium in China has been lower than for Europe. The company has offered to cut premiums there to $80-$85 a tonne.

“Codelco has gone in aggressively for next year to conserve market share,” said a trader in Shanghai.

The miner is battling with domestic smelters that have ramped up production of refined metal by 8.4 percent to 6.2 million tonnes this year.

PPC President Yoshihiro Nishiyama told Reuters that Codelco’s $72 a tonne was an appropriate level given recent spot premiums that reflected softer Chinese demand and higher inventories.

“Premiums in Asia had been higher than Europe due to strong appetite from China. But that has changed since last year in the face of slower growth in China and increased stock built by speculators who had failed to sell them at a high profit,” Nishiyama said.

The lower premiums reflect a tougher environment for metals sales after miners in Peru churned out a bumper year of supply this year. But analysts have recently made a downward revision to forecasts for 2017 mine supply growth to 0-1 percent.

One trader said the premiums represent a bet by Codelco on a drop in copper supply.

“Codelco are trying to sell as much as they can on term deals for 2017 to maximise upside exposure for the spot market,” he said.

Copper futures prices have soared in the past week on worries that an expected surplus next year may be smaller than expected or even balanced. But the price spike has also fuelled concerns that it will blunt fragile demand in China.

Investors have piled into copper futures on signs of recovering global economic growth, limiting profit opportunities in other asset classes.

Codelco’s premiums are viewed as a benchmark for global contracts, with other producers likely to follow suit. (Reporting by Yuka Obayashi; Writing by Josephine Mason; Editing by Kenneth Maxwell, Joseph Radford and David Goodman)

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