Glencore concessions to China expected for Xstrata deal

LONDON (REUTERS) - Trader Glencore is expected to agree to concessions this week to ease Chinese worries over its grip on the supply of copper, clearing the final regulatory hurdle in its US$32 billion (S$39.6 billion) acquisition of miner Xstrata.

After months of negotiations, Glencore is expected to have agreed to yield some ground, with analysts and market sources pointing to a likely sale from among Xstrata's promising, though challenging, greenfield copper projects, which could include Las Bambas in Peru, due to begin production in 2015. Industry sources said a solution might also involve giving China a guaranteed slice of the group's copper production.

Xstrata is already the world's fourth-largest producer of copper and aims to increase output by more than 50 per cent from 2011 levels by 2015, as projects like the US$5.2 billion Las Bambas mine ramp up.

Xstrata and Glencore combined account for around 7 per cent of global copper supply, a percentage expected to rise, with mines in Chile, Peru, Australia and in emerging regions like Africa's copper belt.

As a result, Chinese regulators reviewing the biggest ever mining tie-up have focused on the new group's presence in the red metal, and specifically copper concentrate, the intermediate product that feeds smelters and refineries.

Though China's Ministry of Commerce has only rarely imposed conditions on deals, China is the biggest buyer of the minerals Glencore and Xstrata trade and mine. Its regulator - the only major global watchdog with an overtly political brief - is not deaf to the country's hunger for copper, or to its ambition to process more of the metal at home.

"It is about value and political capital, rather than about just repairing the market," said analyst Paul Gait at Sanford Bernstein in London. "Clearly the Chinese are short of copper and iron ore - and those they care a lot about, and iron ore is not an issue for Glencore Xstrata."

The European Union's decision to require action is also said to have emboldened China. Regulators in Brussels demanded Glencore scrap an exclusive European zinc sales agreement with producer Nyrstar and sell its equity stake.