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UPDATE 1-Codelco asks China to take cut in H1 2014 copper shipments

Polly Yam
Thursday, 7 Nov 2013 | 2:57 AM ET

* Codelco worried about output at new copper mine - source

* Supply from Codelco could rise in second half

* LS Nikko offers term premiums of $135-$140 to China for 2014

(Adds details, LS Nikko term premium)

HONG KONG, Nov 7 (Reuters) - Chinese importers of refined copper have been asked by Chile's Codelco to accept a cut in term shipments in the first half of 2014, two sources said, as the world's largest producer beds down ore processing at a new mine.

However, Codelco has told importers it should be able to supply increased volumes of metal in the second half of 2014 to cover shortfalls in the first part of the year, a buyer and a trading source familiar with Codelco's operations told Reuters.

Reduced term shipments from Codelco could fuel buying by Chinese importers in the spot market, supporting copper prices which have fallen about 10 percent so far this year.

China, the world's top copper consumer, is the biggest buyer of Chilean metal.

Codelco was concerned about refined copper production using ore from its new $3 billion Ministro Hales mine in the first four months of the year, two trading sources said.

The mine is scheduled to come on stream at the end of 2013 and produce about 183,000 tonnes of copper a year.

Codelco intended to cut the amount of total output sold by term shipments from 80 percent to around 70 percent in 2014, but would have more spot refined copper to sell if ore processing ran smoothly at Ministro Hales, the source said.

Officials at Codelco in Santiago were not immediately available to comment.

Codelco officials and Chinese buyers are expected to meet for talks on 2014 shipments to China in the week of Nov. 18 in Shanghai, traders said.

The Chilean producer is expected to offer a term premium of $135-$145 a tonne over London Metal Exchange copper prices . This would be an increase of at least 38 percent over the $98 premium for 2013 shipments, but still below spot premiums in Shanghai currently around $190-$200 a tonne.

The latest estimate of Codelco's premiums, which is typically used as the benchmark for term imports, is higher than the $130-$140 expected by importers and traders at a copper conference last week.

HIGHER PREMIUMS

Reflecting demand for term shipments next year, South Korean producer LS-Nikko Copper has required buyers to pay term premiums of $135-$140 per tonne for 2014 shipments to China, said a separate buyer and a source who is familiar with LS-Nikko's operations.

The offers are about 10 percent above the $123 term premium agreed between another major Asian smelter Japan's Pan Pacific Copper and Chinese firms.

The buyer said his firm had received a premium offer of $135 from LS two weeks ago and the offer had been raised to $140 this week.

An LS-Nikko spokesman declined to comment on the firm's offers of term premiums to China for 2014 shipments.

"A term premium of $140 is still good," said a trading manager at a large Chinese end-user and importer of refined copper, citing strong spot premiums.

Spot standard grades of refined copper in bonded warehouses in Shanghai or metal due to arrive in the city soon traded at premiums of $190-$200 a tonne this week, traders said.

Bonded stocks in Shanghai have stayed at a 1-1/2 year-low around 400,000 tonnes in the past month, compared to a record of about one million tonnes in the first quarter of 2013, they estimated.

(Additional reporting by Alexandra Ulmer in SANTIAGO, Meeyoung Cho in SEOUL and Melanie Burton in SINGAPORE; Editing by Richard Pullin)