UPDATE 2-China's No.3 copper firm in force majeure on some concentrate purchases

Wed, Mar 19 07:32 AM EDT * Jinchuan Group blames technical problem at oxygen facility supplying furnaces * Cut in concentrate imports could support global spot processing fees * Jinchuan's production of copper and nickel likely to fall * Chairman Yang expects nickel prices to rise on outage (Recast with chairman comments on outage and prices) By Polly Yam HONG KONG, March 19 (Reuters) - Jinchuan Group, China's third-largest copper producer, has declared force majeure on some copper concentrate purchases after a technical problem reduced the use of the raw material. The force majeure will cut Jinchuan's imports of contracted concentrates, which could support processing fees in the global copper concentrate market, as the firm's suppliers resell the shipments. The fees are paid by global miners to smelters. The technical problem would keep Jinchuan from hitting 2014 target output levels of 150,000 tonnes of nickel and about 400,000 tonnes of copper in the northwestern province of Gansu, the firm's chairman Yang Zhiqiang said. The company was still assessing how much production would be lost and which metal to prioritize during the breakdown, Yang told Reuters in Hong Kong. Jinchuan said in a statement earlier that a system used to produce oxygen had broken down. Such facilities typically supply the furnaces to melt concentrates. The technical problem is expected to reduce Jinchuan's production of copper and nickel for the next three to four months, about how long it would take to repair the system, said an industry source. Jinchuan is also China's top producer of nickel and platinum group metals, and the problem could buoy London Metal Exchange nickel prices that are already at 11-month highs. Global nickel prices could also rise further with Indonesia's ore export ban in place, Yang said. The ban and China's tougher environmental requirements could force 70-80 percent of China's nickel pig iron capacity to close by the end of the year, he said. China is the world's top producer of nickel pig iron, a low grade ferro-nickel used to replace refined nickel. FORCE MAJEURE Jinchuan did not specify the amount of concentrate affected by force majeure and said it would notify suppliers on the reduced amounts. Force majeure is a clause included in contracts that removes liability for natural and unavoidable events that prevent companies from fulfilling their obligations. Jinchuan has two oxygen supply systems at its headquarters in Gansu. The systems supply copper and nickel furnaces, said the industry source, who declined to be named because he was not authorized to speak to the media. The source did not estimate the production loss, but said Jinchuan did not buy large amounts of nickel concentrates and ores since it owns the biggest nickel mine in China. Before the breakdown, Jinchuan operated a capacity to produce about 400,000 tonnes of copper and 140,000 tonnes of nickel a year in Gansu. Another 200,000 tonnes of copper capacity in Gansu was shut by Jinchuan last year due to shortages of copper scrap, an alternative for concentrate. The firm is in the process of upgrading that capacity, Yang said. The firm has an additional 400,000 tonnes of copper capacity in the southwestern region of Guangxi, which is in a trial phase and has not yet started commercial production. Global commodity trader Trafigura said last month it would buy 30 percent of that capacity. [ID: nL3N0LQ0XH] (Reporting by Polly Yam; Editing by Ed Davies)