PHYSICALS WEEKLY - Shanghai copper up, US ali climb continues but lead premiums hit

London 11/10/2016 - Base metals premiums were mixed this week - although exchange prices for base metals are higher than where they started the year, physical markets are taking divergent paths, largely based on supply-side reactions to those low end-2015 levels.

Aluminium premiums have started to rise in the US, where smelting production has fallen, but remains weak in Asia, where output has risen.

And early-2017 discussions for supply contracts are pointing to higher annual zinc premiums, with mine supply having been slashed early this year.

But in light of expansions at major smelters of lead, its premiums have dropped this week largely due to market oversupply.

While market participants start to discuss annual terms, these factors remain heavily in play in physical markets where demand is soft.

"We haven't seen much demand. [We] expect a lot to come out of warrants, which is a bad demand signal... we aren't expecting much change next year," a trader in London said.

SHANGHAI COPPER PREMIUMS CLIMB, ANNUAL TALKS MONITORED

• Copper premiums have soared to seven-month highs in Shanghai this week after markets reopened following Golden Week in China. Rates elsewhere were unchanged.
• In Shanghai, spot rates climbed to $60-70 per tonne both on a cost, insurance and freight (CIF) and an in-warehouse basis from $55-65 last week.
• "Offers have been higher and those who hold material are unwilling to sell at the $50s because the contango is wide enough to cover their costs" - Shanghai-based trader.
• Higher offers have been heard at $70-75 per tonne - holders are unwilling to sell anything below here and would rather hold onto metal for longer, with the contango in the cash-threes last around $20.5 per tonne.
• Since Tuesday, 4 October, 24,575 tonnes of copper have been cancelled while 19,175 tonnes have been delivered out of LME-listed warehouses.
• "There will be more delivered in in the second half of the month but all depends on the Chinese markets if premiums improve" - smelter source.
• In Europe, rates were steady at $45-50 per tonne CIF Rotterdam and at $90-100 on a delivered basis to Germany.
• Annual talks for 2017 copper cathodes contracts have already started, with some trading houses offering to their clients. Some offers to end-users have been reported at around $95-120 per tonne on a Germany delivered basis, depending on freight costs.
• The US Midwest delivered copper premium inched higher to 5.0-5.5 cents per pound from 5.0-5.25 cents, which was the lowest since FastMarkets' records began in April 2010.
• Market participant in the US are still complaining about unusually soft demand; however, metal holders are now balking at selling a money-losing prices - they would rather put the material into a warehouse until conditions improve or until annual contract talks are completed.

ALUMINIUM RATES RISE IN US, ASIA; STABLE IN EUROPE

• Premiums rose slightly in the US and Asia this week while European rates held stable, with market participants monitoring the return of the backwardation in LME nearby spreads.
• Even though premiums have recovered from recent seven-year lows, the uptrend looks fragile due to a combination of tight spreads and ample supply, market participants said.
• "Stocks are low, LME is high. There aren't enough warrants - nobody wants to store metal on exchange anymore" - trader.
•  He expects tightness to remain a feature of the aluminium market for some months, he added.
• The three-month aluminium price hit a seven-week high of $1,693 per tonne while LME stocks dropped to a 2008 low of 2.12 million tonnes. In nearby spreads, cash/Oct was at $4.50 backwardation and 'Tom'/next was at $2.
• The US Midwest premium firmed to 6.5-7 cents per pound delivered from 6.25-6.75 cents last week against a backdrop of solid demand. But supply tightness is easing due to hefty imports after producers shifted exports towards the US while traders moved stocks from Singapore and South Korea to the US.
• "There are good levels but yet there are imports. And a lot of discounts remain and flexible payment terms" - US trader.
• In Asia, premiums have increased slightly from very low levels - excess supply has eased slightly due to the shift of material towards the US.
• Spot premiums in Japan rose $5 to $70-75 per tonne, moving into alignment with the quarterly benchmark of $75. But transactions were spotty due to the weak yen against the dollar. Rates in Taiwan and South Korea climbed a few dollars to $65-75 and $60-65 respectively.
• In Europe, premiums held stable at $70-80 per tonne duty-unpaid and $120-130 duty-paid in-warehouse Rotterdam, with no real appetite to buy or sell on the spot. The focus is firmly on 2017 supply contract negotiations.
• The Italian market moved to $160-170 per tonne duty-paid free-carrier arrangement (FCA) from $155-170 previously.

LARGE LME WARRANTINGS TAKE PLACE AMID SLIDE IN PREMIUMS

• Lead premiums were lower in Asia, Europe and the US, with premiums under pressure due to growing LME stocks and weak physical buying.
• On Monday and Tuesday, a total of 14,975 tonnes of lead were rewarranted onto the LME in Spain and the Netherlands. On-warrant LME stocks have risen 28% since the start of October.
• Premiums for warrants in Europe have softened, falling $5 this week to a range of $5-15 per tonne over LME cash prices in Spain, Rotterdam and Antwerp.
• Premiums are also under downward pressure in India. Spot imports to one of the world's most liquid spot markets for the metal have almost totally halted while LME prices have soared since the start of September, putting them far higher than local secondary lead prices.
• Premiums for 99.97% purity lead in India have dropped to $35-55 per tonne CIF from $55-75 per tonne last week.
• Some sellers reported bids from consumers at zero premium on a CIF basis but there have been no trades at this level.
• "As far as India is concerned, it's absolutely a subdued market and we don't see any signs of revival and that's largely because of the higher LME lead prices" - local trader.
• Premiums for 99.9%-purity metal delivered to the US Midwest slipped this week to 9.0-11.0 cents per pound from 10.5-11.5 cents amid a surge of imports and a slow start to the battery buying season.
• "There's a lot of Korean Zinc metal coming into Baltimore - it's starting to pile up a bit and that's putting some pressure on premiums. There's not enough demand to consume what's coming in at the moment" - US lead consumer.
• The US Geological Survey (USGS) pegged imports from South Korea at 57,800 tonnes from January to June of this year, an 82.9% jump from 31,600 tonnes in the same period of 2015.

ZINC PHYSICAL MARKET LOOKS AHEAD TO ANNUAL TALKS

• Zinc premiums were unchanged this past week. Some physical buying was reported due to prices coming off May 2015 highs but market makers are largely looking ahead toward annual contract negotiations, which have started to come into view.
• Three-month LME zinc prices are down 7% from October 4 highs at $2,250 per tonne, a point at which some consumers have taken the opportunity to buy.
• But European premiums are unchanged this week at $125-140 per tonne duty unpaid FCA Rotterdam.
• Similarly, premiums in Asia have not moved from $115-125 per tonne CIF Taiwan.
• Expectations so far are for a small rise in annual zinc premiums from 2016 levels - sharper zinc concentrate treatment charges for smelters could lead to some cuts to refined supply.
• But premium discussions for 2017 tonnages will start in earnest around London's LME Week at the end of October and start of November.
• "For me it's also what we see or what is in the warehouses - we have never had any problem to source any material so there was I think there is still plenty of material around" - consumer in Europe.

NICKEL MARKET REMAINS IN IMPASSE; TIN ALSO UNCHANGED

• Nickel spot premiums were stable this week, with the higher price relative to earlier in the year limiting interest from consumers in Europe in particular; equally, a lack of arbitrage opportunities into China has maintained the status quo there.
• There has been no further movement in the US where last week commodity melting-grade nickel spot premiums for truckload volumes dropped to 16-20 cents per pound over the LME price from 18-22 cents previously, their lowest for two months. 
• There has been no impact on the market following the closure of the Moa nickel-cobalt mine owned by Sheritt International in Cuba in light of Hurricane Matthew's landfall in the region last week.
• Producers typically account for hurricane season in their production forecasts and allow for seasonal stops of three to five days in their calendars, according to one European trader. 
• In Europe, briquette premiums held at $60-80 per tonne in-warehouse. While briquettes are generally more thinly supplied in Europe compared with full-plate cathodes, the scrap market has been far more buoyant since the price increases towards the end of summer, offsetting much of the demand for primary, traders said.
• "It's all price-related at the moment - there's just not much interest at current levels" - trader.
• Full-plate cathode premiums were last assessed at $70-80 in-warehouse in Rotterdam.
• Still, in China, where much of the action over the last 10 months has been centred, trading volumes have been almost non-existent, some traders said - with the arbitrage ratio still very much negative, interest is weak. Non-SHFE-deliverable cathodes were last quoted at $70-90 per tonne CIF and bonded while SHFE-deliverable material was last assessed at $80-100.
• Tin premiums were unchanged this week - high prices continue to deter buying while concerns about the impact of the Hanjin bankruptcy eased on reports that few containers are affected.
• Premiums for 99.9%-purity metal held at $75-125 per tonne in Singapore and $360-400 in Rotterdam on an in-warehouse basis.

(Editing by Mark Shaw)