PHYSICALS WEEKLY - Ali premiums turn mixed, copper eyes SRB buying

London 05/01/2016 - Premiums for physical metal started 2016 much as they ended 2015, with few notable movements this week.

"Enquiries across the metals have been a bit better since the reboot this week, especially for nickel in the Far East and a bit for copper, but mostly it's been exactly how it was at the end of 2015," a warrant trader told FastMarkets. "Things haven't really got going yet."

Again, activity revolved around Asia, particularly in copper and zinc due to better currency differentials - the offshore yuan rate moved as high as 1,200 pips above the onshore rate at one stage on Tuesday.

And China's State Reserve Bureau (SRB) is looking to buy 150,000 tonnes of copper through a tender that might take place this week, industry sources told FastMarkets.

Meanwhile, in aluminium, the premium for first-quarter ingot supply to Japan has been confirmed at $110 per tonne over LME prices for Major Japanese Port (MJP) delivery, up 22 percent from the low fourth-quarter level, sources told FastMarkets.

Still, US aluminium premiums have taken an unexpected step backwards - a mild winter has freed up excess scrap and reduced primary metal consumption.

The focus was also on LME warehousing after news last week of a large increase in rents and FOTs from April 2016 - Metro led the charge with a 30-percent increase. This has prompted the exchange to review the possibility of introducing charge capping, raising the risk of litigation.

ALUMINIUM PREMIUMS MIXED, US FALLS WHILE ASIA FOLLOWS MJP HIGHER

• Premiums turned mixed this week - Asian rates rose in line with a firmer Japanese quarterly benchmark while Europe was stable and the US fell further after an unusually mild winter boosted flows of scrap
• In Asia, first-quarter supply negotiations in Japan concluded at an MJP premium of $110 per tonne over LME prices on a cost, insurance and freight (CIF) basis, up 22 percent from the low fourth-quarter level of $90
• The increase, despite high domestic stocks and soft demand, was seen as bringing Asian premiums into line following recoveries in rates in the US and Europe at the end of last year
• "If we look at the Japanese market itself, there is limited reason to increase the premium. But the Midwest premium remains quite bullish so premiums were sustained" - senior trader at Japanese trading house
• Spot premiums in Japan firmed to $105-115 per tonne CIF MJP from $100-110 last week and a low of $70-85 at the start of November, while other Asian locations also climbed - CIF rates in South Korea, Singapore and Malaysia all increased to $100-115 from $95-105 previously
• Paradoxically, the US Midwest premium declined this week to 8.5-9 cents per pound delivered ($193 per tonne) from 8.9-9.25 cents last week and a peak of 9.5 cents in December
• US consumers are well stocked for the first quarter and less worried about scrap availability and imports from Canada given the warmer-than-usual temperatures
• "The US is under [downward] pressure but all we need is a big snowstorm and we should get some demand back." London-based trader on the US market
• Several consumers are also holding off on buying spot metal until after a major industry conference in South Florida on January 20-22
• European premiums held stable in slow start-of-the-year trading. Fresh demand was limited but the pressure to sell also eased due to slightly less tight nearby LME spreads. Cash-Jan, Jan-Feb, cash-Feb and Cash/threes were all in contango of up to $6.50
• "Spreads are not good but you don't lose enough money to let units go so there's not that much cheap material out there" - trader in Europe
• "Nobody is rushing to buy. Spreads are still not attractive so you only buy what you need" - another trader
• Rotterdam in-warehouse premiums remained at $110-120 duty-unpaid and $160-170 duty-paid while Italy was stable around $200-210 duty paid free-carrier (FCA)

COPPER RATES STABLE, POST-HOLIDAY VOLUMES LIGHT

• Copper rates remained stable in China at $75-90 per tonne in bonded warehouses in Shanghai and at $75-85 per tonne CIF
• News that China's SRB will buy 150,000 tonnes of copper via tenders slightly raised expectations for further tightness should it act soon
• "The 150,000 tonnes by the SRB and [production cuts of] 200,000 tonnes by domestic copper smelters in the first quarter… could absorb the surpluses hanging in the market. But obviously you could also have more influx of metal as long as the arbitrage stays wide" - copper trader in Shanghai
• The arbitrage window between the LME and SHFE fluctuated but there was caution about using the currency arbitrage to gain more profit due to stricter regulations
• "Banks are not allowed to do this any more" - Chinese trader
• Premiums in the rest of Asia were unchanged but interest has waned due to holiday-induced disruptions
• In Europe, spot premiums remained at $45-55 per tonne - few transactions were done over the holidays
• Traders and producers have signed most of the their annual contracts, with the ratio of spot to annual deals unchanged from 2015
• "We are able to secure a few more dollars than the benchmark in central Europe… around 70-80 percent are signed on the long term" - European trader
• The US Midwest copper premium remains depressed at a four-year low of 5.0-5.5 cents per pound amid still weak demand and distressed offers from cash-strapped producers
• "[The US has] become a 100-percent producer-consumer market. The premiums [offered by producers] are so low that traders have been completely cut out. There's no way we can compete when they'll sell for 2.0 cents into Panama City, Florida" - US-based trader.
• Comex copper warehouse stocks remain elevated at 69,703 short tons, which is just shy of a three-year high. The high inventories are a function of tepid demand and the fact that it is uneconomical for traders to sell physical Comex metal to consumers when premiums are at 5.0 cents.

FULL PLATE NICKEL CATHODE PREMIUMS FIRM IN SINGAPORE

• Premiums for full-plate nickel cathodes rose in Singapore - demand remains strong for Shanghai Futures Exchange (SHFE) deliverable material, with limited spot availability in Southeast Asia
• A positive arbitrage between LME nickel and SHFE metal and the onshore-offshore yuan arbitrage created significant demand for Norilsk H1 brand cathodes, which were quoted with premiums as high as $50 per tonne in-warehouse Singapore. But these units are hard to find through LME clearing, with most having already been sifted out, sources said
• Availability has been limited further by the queue in Johor warehouses - 76,782 tonnes of nickel are cancelled there
• "A lot of the material taken out of Johor was going to Kaohsiung in line with the change in LME warehousing this April" - trading source
• The European market has been quieter, with premiums static at $30-40 per tonne in-warehouse Rotterdam for full-plate cathode, briquettes at $10-25 and cut cathode at $190-210
• Some European consumers extended Christmas and New Year holidays due to a lack of orders, sources noted
• "There is still sufficient material available and demand is still low" - second trader
• US melting-grade nickel spot premiums for truckload volumes rose to 15-20 cents per pound from 14-18 cents - there is some modest tightness in cut cathodes and less discounting of briquettes.
• "It hasn't been a bumper start to the year - not that anyone was expecting a quick turnaround. People are still holding inventory from last year and everyone is covered for the first quarter. But there are a couple of positives. There was a little tightness in cut cathodes. We did a deal at almost 20 cents - that wasn't possible in late November" - US-trader
• The LME's listing of Ambatovy nickel briquettes has also supported premiums. These units can now be placed into exchange sheds instead of being dumped for premiums below 10 cents, which was a common occurrence in the second half of 2015

SPOT TIN PREMIUMS UNDER PRESSURE ON LME STOCK INCREASES

• Spot tin premiums edged lower in Singapore and in Europe due to LME stock increases in Singapore and Port Klang in the final weeks of December
• Premiums for 99.9 percent standard-grade material basis in-warehouse Singapore are at $55-75 per tonne although 99.85 percent purity 'MSC' tin premiums have fallen to $0-20 per tonne from $10-20 last week due to higher availability
• December deliveries of low-lead Chinese-origin material stemmed from China-based traders fulfilling annual minimum export requirements to be eligible to renew licences this year rather than distressed selling from producers, sources said
• But the addition of this metal has meant that, at least temporarily, spot low-lead tin premiums in-warehouse Rotterdam are under pressure, falling $25 to $425-475
• "It is having an effect on spot business with lower premiums" - seller

ZINC PREMIUMS UNCHANGED IN ASIA AND EUROPE, UP IN US

• Zinc premiums were stable in most regions except for the US this week amid very quiet conditions - investors are slowly returning from holidays. Rates in China remained at $110-130 CIF and in bonded warehouse
• "South Korean brands were traded at the premium of around $130 while Indian material was usually traded $20 cheaper" - trader in Shanghai
• Benefiting from a China-South Korea free trade agreement, Chinese importers no longer have to pay import duties for South Korean zinc, saving them as much as $16-20 per tonne on imports, traders added
• The arbitrage ratio between the SHFE and the LME hit 8.39 but it remains unprofitable to import due to a soft yuan and high expectations of further weakening, sources noted
• European premiums are steady at $130-145 duty-paid FCA Rotterdam. The market is still in holiday mode and remains quiet
• In the Middle East, rates were unchanged at $160-170 per tonne for high-lead zinc and $175-185 for low-lead special high grade zinc although some aggressive offers were heard
• "They didn't put the number on the table but they said they could get plenty of material at much lower premiums. So there's some downward pressure on rates" - trader in Europe
• The US premium for special high-grade (SHG) zinc rose to 6.75-7.25 cents from 6.5-7.0 cents per as end-year destocking ended and spreads improved

LEAD PREMIUMS RISE IN EUROPE AMID SCRAP TIGHTNESS, STABLE ELSEWHERE

• Spot premiums for 99.97 percent purity lead, used by most of the market, increased to $10-20 per tonne in-warehouse Rotterdam from $10-15 previously - secondary supply fell due to tight battery scrap
• "There's huge shortage of battery scrap in Europe such as Germany and other regions" - trader in Europe
• Bids and offers in Europe are too far apart, sources agreed - the price of scrap is too high for recyclers to buy while it is too low for collectors to sell

(Editing by Mark Shaw)