By Pratima Desai
LONDON (Reuters) - Codelco is in talks to sell up to 60,000 tonnes of copper a year to China Minmetals from 2019 to 2021, marking a change in sales strategy at Chile's state-owned miner which typically made deals on an annual basis, industry sources said.
Sources say the aim was to agree "evergreen" three-year deals in which the Chinese company would commit to buy 50,000 to 60,000 tonnes a year of copper for the period.
Under the arrangement, the three-year pact would be rolled over annually, so from 2020 the deal would be extended to run for three years until the end of 2022 and so on.
The deal with China Minmetals, part of Codelco's efforts to secure longer term supply contracts, focuses on the quantity of copper to be supplied, sources said.
Typically supply contracts are agreed annually for the next year during what is known as "mating season" in October and November when producers and customers agree quantities. Premiums are set above the London Metal Exchange benchmark price.
"Codelco is looking to establish a base of bigger and long term strategic customers worldwide and Asia is not an exception," one of the sources told Reuters.
A Codelco official said the company did not comment on negotiations with customers. A China Minmetals spokesman said the company could not immediately comment.
"The relationship between Minmetals and Codelco has been there for many years, the important thing is the three years and the quantity," a copper industry source said.
Codelco, the world's largest copper miner, accounted for 1.734 million tonnes of global supplies last year, about 7 percent of the total estimated at about 23 million tonnes. It has historically been used as a benchmark for copper premiums.
Many companies are keen to lock in long-term supplies due to expectations of shortages over coming years, created by a dearth of new projects, deteriorating ore grade and healthy demand.
Sources say companies seeking to buy copper at the moment can easily find sellers and any deficits in the short term would see prices rise, which would see more scrap heading for the market to close the gap.
However, a 25 percent duty on Chinese imports of U.S. copper scrap imposed since from Aug. 23 has fuelled uncertainty about supplies in China, the world's largest consumer of the metal used widely in power and construction.
"These tariffs have the potential to create a lot of problems for Chinese consumers. But it's not just the tariffs, some companies just want to be sure they have supplies secured," another copper industry source said.
"People think you can't agree contracts without premiums, but premiums can be agreed at a later time," the source added.
For 2019, Codelco has agreed some deals with premiums at $98 for European customers. Some Chinese customers have agreed to pay $88 a tonne and other Asian clients have agreed $83 a tonne.
Copper prices on the LME