Annual negotiations over fees for producing refined copper are set to be more difficult than usual this year as the most dramatic upheaval in financial markets in decades stirs deep fears of a decline in global growth.

    Major miners with strong pricing power are likely to point to low stocks of copper concentrate and declining mine output as a reason to drive fees down even lower.

    The smelters will argue that the crisis in financial markets and worries about Chinese growth could result in smelter closures, easing the relative tightness in the market.

    Mine production has been very weak this year -- global mine production fell 2 percent in the first half. That in itself would suggest we will see lower numbers, Barclays Capital analyst Gayle Berry said.

    However, metals demand will be much weaker.

    These opposing forces will make for protracted talks.

    Japanese copper smelters, including Pan Pacific Copper and Sumitomo Metal Mining (5713.T: Quote, Profile, Research, Stock Buzz), are facing off against the likes of BHP Billiton Ltd/Plc and Rio Tinto as the mating season, typically in mid-October, starts during the annual London Metal Exchange Dinner week.

    Japan Mining Industry Association Chairman Nobuyoshi Soma said the business environment was not getting easier for Japanese industry as global miners merged, concentrating raw material supplies in a handful of firms.

    "Our stance is to try to reverse the status quo," Soma said when asked about prospects for this year's copper talks at a news conference in late September.

    The general view in the industry is that the talks will again be difficult for Japanese smelters, an official said.

    "If they manage to clinch processing fees that are at the same level as what was agreed to during the mid-term talks, I think you could give them full marks for having done a good job."At this year's mid-year talks, Japanese copper smelters mostly agreed on a treatment charge of below $45 per tonne and a refining charge of under 4.5 cents per pound for the one-year term starting from July.

    Some reports suggested BHP settled mid-year fees with Japan smelters as low as $42.5 and 4.25 cents respectively.

    The levels are down about 60 percent from fees of $115/11.5 cents set for the one-year period starting in July 2005, which industry officials said was a record high.

    Copper concentrate supplies have been tight as global smelters, led by China, expanded capacity and fees have been mostly on a downtrend since the middle of 2005.

    Others in the industry said change could be in the wind given signs of slowing Chinese demand for copper.

    Those holding to this view note that the global copper deficit in January-June amounted to 130,000 tonnes, down from 264,000 tonnes from the year-earlier level, according to a release by the International Copper Study Group in September.

    Others in the industry said, however, that this view might still be a bit optimistic.

    "I think most people expect Chinese demand to slow, but the question is when that will happen and by how much," an industry official said.