PHYSICALS WEEKLY - Downbeat Asian markets succumb to more pressure, US resilient

London 17/05/2016 - Physical base metal markets premiums fell across Asia over the past week, with excess supply swamping stagnant demand. China is still wrestling with overcapacity as well as slower growth; it's a similar story in other countries in the region.

Aluminium premiums softened in Japan while copper remained at very low levels in Shanghai. Buyers' markets for zinc in Singapore and Malaysia mean that premiums are not budging despite sellers' attempts to raise them.

The US, however, has been more resilient - demand for most metals there remains robust while the strong dollar has triggered supply cuts, especially in aluminium.

JAPANESE ALI PREMIUMS HIT 5-MTH LOW, US FIRMS ON INCREASED PHYSICAL INTEREST 

• Premiums for P1020 aluminium ingots have softened in Japan, with some market participants willing to settle for lower numbers.
• Demand from the Japanese construction, can and automotive sectors is weak, one trader in Japan said.
• Premiums for CIF cargoes to major Japanese ports (MJP) dropped $5 to $95-105 per tonne, with recent tenders from consumers going at sub-$100 levels - well below the $115-117 per tonne agreed for second-quarter contracts.
• MJP port stocks fell to 324,800 tonnes in April from 345,600 tonnes in March but are still at comfortable levels, sources said.
• Spot aluminium inquiries in the US have picked up over the past week and some traders are testing higher premiums but cautious consumers have so far resisted higher numbers. The US Midwest aluminium premium remained unchanged at 7.75-8.0 cents per pound.
• "We've received a lot of calls but they aren’t yet turning into orders. People are poking around but they're still a little afraid to pull the trigger. The extruders we deal with still don't want to hold any extra inventory" - US producer.
• "The US is best market in world right now. There are still producers and traders who are long but they aren't discounting and some are even quoting higher numbers. We haven’t gotten over 8 cents yet but I think that might happen soon" - second producer.
• In Rotterdam, premiums are stable, with an unspectacular contango in the nearby LME forward spreads maintaining the status quo.
• Ingot premiums in Rotterdam stood at $75-85 per tonne for duty-unpaid material and $125-140 for duty-paid.
• Aluminium continues to leave LME-registered sheds in Vlissingen, with much of it still in strong hands but some trickling into the wider market.
• "When there are bigger enquiries around, the bigger clips are interesting to move directly out of the queue and ship to a consumer rather than move to another warehouse and pay those costs"  - trader in Europe.
• Market participants reported strong availability with vast tonnages still available on and off warrant.
• "I don't think there will ever be an availability problem and there isn't one because I can talk to anyone and get spot metal now" - trader in Europe.
   

COPPER RATES SLUGGISH IN SHANGHAI, UP IN GERMANY 

• Spot premiums for copper in Shanghai were unchanged this week while rates in Germany have edged higher due to better consumer demand in May.
• In Shanghai, rates for grade A copper cathodes were last around $45-55 per tonne CIF and in-warehouse although the arbitrage ratio is now moving to breakeven at 7.7-7.8.
• "The arbitrage has improved slightly but still you lose several hundred renminbi if you import. Trading volumes are generally thin" - Chinese trader.
• In Europe, premiums in Rotterdam are unchanged at $50-55 per tonne while rates in Germany have edged up to $100-110 delivered.
• "Some of our customers are trying to lock in material for next year in case of an increase of premiums" - copper trader in Europe.
• The US Midwest premium is very firm at 6.0-6.5 cents per pound - scrap dealers have grown "desperate" for material following an unexpected period of tightness that emerged "seemingly overnight" during the second week of April.
• The American Copper Council spring meeting, which was held earlier this month, was a busy event where several traders and producers sold sizeable volumes at healthy premiums.
• "We sold out everything we had at ACC - we cleaned out our inventory and warehouses. In most years, our meetings at that conference are with cathode traders but this year I was approached again and again by the scrappies" - producer source.
• Many US mills and rod producers are looking to buy off-grade copper but metal holders said that there is not much incentive to offer steep discounts unless it is really rough material.

DISCONNECT BETWEEN BUYERS AND SELLERS ON ZINC IN ASIA; EUROPE STEADY

• The US premium for special high-grade (SHG) zinc climbed to 6.75-7.25 cents per pound from 6.5-7.0 cents previously. Suppliers are holding their metal tightly in anticipation of higher near-term premiums.
• "It's the calm before the storm. It's hard for people to speculate because pretty much everyone expects price and premiums to go up so they don't want to sell to traders. We would rather save our metal and service our customers in the fourth quarter. Right now, no one wants to let material go" - producer source.
• On the demand side, the US Department of Commerce late last year imposed preliminary duties on corrosion-resistant steel products. This has led to a reduction in imports and increased production by American galvanisers.
• "Ever since that anti-dumping ruling came down, the galvanisers have been running full tilt. They are hard pressed to keep up with demand and they will need extra [zinc] supply in the second half" - zinc producer.
• Premiums for zinc held steady in Europe this past week, with consumption reportedly steady but overall interest generally muted, particularly when more units are being offered.
• Zinc ingot rates held at $130-140 per tonne duty paid, free-carrier agreement (DP FCA) basis Rotterdam.
• Asian markets are largely unchanged but the disconnect is widening between where holders and would-be buyers see the market
• "There is such a wide spread... consumers and sellers really have a different opinion" - local source.
• Offers in Shanghai range upwards from $130 while bids are closer are either side of $100 - spot trades, while thin, have been heard nearer the latter.
• Shanghai remains at $95-110 CIF and in the country's bonded zone.
• "Consumption is stable but there are still inventories domestically - stocks will obviously be drawn down first so there's no real interest in bonded cargos... especially with the arb ratio being negative" - Chinese trader.
• Southeast Asia rates were last at $60-70 per tonne in Malaysian warehouses for low-lead material and around $70-80 for high-lead but trades are also thin.
• Asian traders largely agreed with suggestions made at a conference last week that zinc could reach $2,000 per tonne by the fourth quarter
• "It remains a possibility - we're in the high $1,800s for the moment but there's tightness in the concentrate market. Once that disconnect between refined and concentrate starts to narrow and when some of the stocks lying around in the localities start drying up, things may look better" - Southeast Asian trader.
• Traders continue to report stronger sales in the Middle East, where low-lead zinc is fetching premiums of $170-180 per tonne FCA.
   

NICKEL PREMIUMS WIDEN FURTHER IN ASIA AND EUROPE, STEADY IN US

• Premiums for full-plate nickel cathodes widened further in Singapore and Malaysia to $20-55 per tonne in warehouses, down $15 at the lower end.
• "Non-Russian material traded at the bottom but few wanted it because it is not deliverable onto the SHFE while we had lots of enquiries for Russian brands but we don't have any to sell" - trader in Asia.
• Shanghai full-plate cathode premiums also widened to $120-160 per tonne CIF and in bonded warehouse, down $10 at the bottom end, with the bulk of the business done in that range.
• "The market became messy recently due to the low liquidity - overall trading volume is thin and demand is not as strong as expected" - trader in Shanghai.
• The European market has picked up - premiums for briquettes climbed to $50-100 and full-plate cathode widened to $55-70 per tonne in-warehouse Rotterdam, up $5 at the top end
• "We got lots of interest in briquettes but we don't see many briquettes available in Europe - if there’s any urgent need from end-users, it could gain even higher premiums" - trader in Europe.

TIN STABLE, EYES ON CHINESE MATERIALS AND RBT

• Demand remained stable in Asia and Europe where end-users are well covered and there is little spot interest.
• Most market participants have seen little or no impact on premiums in Asia after the shuttered RBT smelter shipped its final tonnages of tin to Singapore.
• Singapore premiums were steady at $80-110 in-warehouse for LME-registered 99.9-percent purity brands such as PT Timah and RBT.
• "Some long-term contracts clients of RBT are turning to other suppliers in Europe, resulting in increased demands. But this hasn't transferred to premiums" - trader in Europe.
• In Rotterdam, in-warehouse premiums were at $450-500 for low-lead tin and CIF rates were stable at $440-490.
• "The mainstream market stands where it was but we’ve heard that small volumes of Chinese material were available below $400 in some European ports" - trader.

THREE-NINES LEAD IN ASIA STILL DOGGED BY INFLUX OF IRANIAN MATERIAL

• Lead premiums remained lower this week in Asia, reflecting the large volume of Iranian material on offer there.
• Rates for 99.97-percent-purity lead were last at $65-85 per tonne over LME prices. Similarly, in India, premiums for 99.97 ingots were last at $65-85.
  
  

(Editing by Mark Shaw)