Codelco, the world's second largest molybdenum producer, is in the middle of its annual negotiations with Asian customers and is expected to reach an agreement with its Japanese customers by December, market sources said Monday.
Codelco sells 90% of its annual output via long-term supply deals and the rest in the spot market globally. Japan is a major buyer, accounting for at least 70-80% of Codelco's sales, market sources said.
Both Codelco and Japanese customers do not disclose details regarding the talks. But market sources said that Codelco would be visiting its Japanese customers in early December, which is likely when the formal talks will begin, and normally they are completed within a month.
Codelco is said to have settled long-term supply deals for next year with all its Chinese and a couple of its South Korean customers, at discounts ranging over 1-1.5% to the monthly average of the Platts molybdenum oxide assessments, less than this year's 2% discount.
Codelco argued that its moly output was likely to be substantially lower in 2017 due to the degradation of its copper-moly mine in Chile, which may cut its supply of 100% content grade by as much as 6,000-7,000 mt.
For 2016, some Japanese customers received a 2% discount while one customer got a 20 cents discount to the monthly average of Platts assessments.
Japanese customers might ask for a rollover of this year's discounts or an even deeper discount, a Japanese source said, explaining that demand for moly for oil pipes may reduce next year amid uncertainty in the oil market and a stronger yen.
Codelco may give in to the requests as Japan is its core buyer and other suppliers such as Molymet and Sierra Gorda are trying to increase their market share in the country, sources said.
