Chinese smelters may import less copper concentrate and reduce production if overseas miners scrap a scheme to share high copper prices with them.

The scheme, known as price participation, gives smelters the right to receive higher fees for processing concentrate, the raw material, as copper prices hover near record highs hit in May. The scheme is based on multi-year contracts.

"Concentrate prices are determined by world metal prices, therefore the price model is important," said Wang Chiwei, executive director of Jiangxi Copper Co Ltd, China's largest copper producer.

The fees are paid by miners and serve as important revenue to smelters such as Jiangxi Copper.

China is the world's biggest copper consumer, but needs to import more than half of its concentrate.

"If there is no price participation, it is not acceptable. No smelters will agree to this," said Yang Jun, head of China Smelters Purchase Team, which represents eight top Chinese smelters including Jiangxi Copper and jointly imports spot concentrate.

Yang said that BHP Billiton Plc Ltd has demanded that Japanese smelters scrap the price participation scheme for shipments between July 2006 and June 2007. If agreed, other miners such as Freeport McMoRan Copper and Gold Inc could follow suit in a bid to boost profits.

Instead of the scheme, BHP has proposed giving Japanese smelters fees equivalent to roughly US$80 per ton for treating and 8 US cents per pound for refining its concentrate, 16 percent lower than the fees with price participation in 2006, according to Japanese industry officials.

Chinese smelters are likely to face the same proposal when they hold talks with BHP later this week on yearly fees for shipments during the same 12 months.

At least six top Chinese smelters hold multi-year contracts with BHP with about 340,000 tons of copper concentrate a year involved about a tenth of China's imports. But falling fees make the price scheme even more important to Chinese smelters.

Under the scheme, when world copper prices rose above the base copper price of 90 US cents per pound, Chinese smelters received 10 percent of the difference on top of the agreed fees. Copper now trades above US$3.50 per pound.

The fees are then deducted from the sales price of concentrate, which is based on the world copper price.

Copper hit an all-time high of US$8,800 a ton in mid-May and is still up more than 70 percent on the year.

"If the fees will lead smelters to make losses, smelters would prefer to cut production," Wang said.

(China Daily August 3, 2006)