Jiangxi Copper hit by smelting, hedging losses

PUBLISHED : Wednesday, 10 December, 2008, 12:00am
UPDATED : Wednesday, 10 December, 2008, 12:00am

Jiangxi Copper, the mainland's biggest integrated copper producer, is expected to post a fourth-quarter loss because of losses from hedging and the smelting business amid a drastic fall in prices of copper and sulphuric acid, analysts said.

The company's smelting business, which returned to break-even levels in the first three quarters from losses last year, was facing a tough environment again since October as a result of plunging copper and sulphuric acid prices, said Guotai Junan Securities analyst Sabrina Xie Lulu, who attended a teleconference with company management.

The concern was confirmed by Jiangxi Copper company secretary Pan Qifang, who said yesterday that copper prices had fallen more than 50 per cent since October, while prices for sulphuric acid, a by-product from copper smelting, had dropped 80 per cent since August.

'No smelter could make money smelting imported copper concentrate in such a situation,' Mr Pan said.

To combat falling copper prices, Jiangxi Copper and other mainland smelters were asking to raise processing fees for mining companies, including BHP Billiton, he said.

He declined to say what increase the company was asking for, but said they needed to be doubled for the company's smelting business to be able to break even.

Bloomberg, quoting industry officials involved with the negotiations, said mainland smelters had asked BHP Billiton and other mining companies to pay 74 per cent more to smelt the concentrate into copper anode, although BHP only offered to raise the fee by 12 per cent last week.

Despite the outlook, the firm reiterated that it had no plans to cut its 700,000-tonne output target this year and would produce more next year.

Ms Xie said the company would also 'suffer from hedging losses in light of the freefall in copper prices'.

After factoring in a hedging loss of 600 million yuan (HK$676.5 million), Ms Xie estimated a 150 million yuan loss at Jiangxi Copper in the fourth quarter, compared with a profit of 919 million yuan in the third quarter.

Jiangxi Copper shares gained 4.4 per cent to HK$5.50 yesterday as investors expected the company to benefit from increasing mainland investment in infrastructure.

Losing proposition

Jiangxi Copper wants miners to pay higher processing fees

Since October, copper prices have dropped more than: 50%