Intense competition among some large commodity traders has created favorable conditions for negotiations for miners, from large prepayments to long-term contracts, in the copper trade.

Cash-rich energy traders, including Mercuria Energy Group Ltd., have recently intensified their efforts to expand their metal business, exacerbating tensions and fueling contract disputes. The industry is now facing an unprecedented copper ore supply shortage. The metal market has long been dominated by Glencore Plc and Trafigura Group.

Mining companies are seizing the moment. Eurasian Resources Group (ERG), a producer, is seeking prepayments of up to $1 billion for its copper and aluminum output, which has attracted interest from bidders such as Trafigura and Mercuria. Other companies have recently signed contracts for mineral supplies, with terms that are very attractive to miners and extend until the second half of 2010.

This competition reflects to some extent the impact of energy-focused traders seeking to expand their metal business. Mercuria has been vying for copper mine deals and is currently in talks to hire one of the most well-known figures in the market, Kosta Bintas, the former co-head of metals at Trafigura.

This also shows how the industry is responding to a series of chaos and contradictions: refined copper supplies are plentiful but concentrate ores are severely scarce. Refined copper is a semi-processed ore that needs to meet the needs of a rapidly growing smelter network. Although copper demand is currently relatively tepid, entities and financial institutions are preparing for widening deficits and price spikes in the coming years.

Copper trades signed with miners usually do not involve speculation on copper prices, but if the expected copper shortage really materializes, these trades could bring huge profits to traders.

According to sources, a large metal prepayment deal proposed by Kazakh producer ERG has aroused strong interest from traders. The company will provide about a year's uncommitted production of copper assets in the Democratic Republic of Congo and aluminum from a Kazakhstan smelter.

Sources said the trading deals could raise as much as hundreds of millions of dollars in cash, up to $1 billion, and that both Mercuria and Trafigura have been in talks with ERG about the offers. ERG's Metalkol business and Frontier mine produce approximately 200,000 tons of copper containing material each year, while its JSC Pavlodar aluminum plant has an annual capacity of 250,000 tons of LME-branded metal.

Glencore has already signed a contract to purchase cathodes from the ERG Metalkol plant and is increasing the size of its prepayment under the agreement.

Advance cash payments to ensure supply in the commodity sector are not uncommon, but the scale of the ERG offer is surprising, indicating that the market is heavily skewed toward the seller.

In addition, since the UK Serious Fraud Office terminated its long-running investigation into ERG subsidiary Eurasian Natural Resources Corp. last year, it has become easier for traders to raise funds from banks for ERG prepayments.

Recent other deals suggest that miners expect the severe shortage of copper concentrates to continue for some time. Several mining companies have signed contracts with unheard-of favorable terms a few months ago, with contract periods extending up to 2028.

These deals include Capstone Copper Corp.'s contract to sell approximately 380,000 tons of copper concentrate from a copper mine in Arizona, which will be delivered from 2025 to 2027, and Hudbay Minerals Inc.'s recent offer of some products from Peru, from 2025 to the end of 2028.