London 01/03/2016 - Physical premiums for base metals were down this week in key areas, pressured lower by higher LME prices and poor physical demand.
Premiums slipped for copper and nickel in Shanghai - the import arbitrage window remained firmly shut and plenty of metal is available.
"It's a bit disappointing - in a certain way we were expecting a new breath of air from China after the holidays, which is not coming for the moment," a trader in Europe said.
Similarly, demand for industrial metals has softened in the US, with premiums for copper and aluminium dropping there.
"[The US economy] has shown some serious signs of slowing down in recent months. Hopefully, we can get out of this rut soon - otherwise it's going to a long rest of the year [for our industry]," a US-based metals trader said.
Aluminium premiums continue to stumble globally, with nearby spreads falling further into backwardation on Tuesday.
INGOT PREMIUMS AROUND THE WORLD BEAR BRUNT OF ALUMINIUM SQUEEZE
- Spot premiums for P1020 aluminium ingots fell around the world amid a continued squeeze - the backwardation in the cash-3s spread flared out to $23 on Tuesday.
- The Rotterdam premium fell to its lowest since October 2015 at $75-85 per tonne on a duty-unpaid in-warehouse basis. Duty-paid premiums also dropped to their lowest since October 2015 at $125-135 although traders highlighted the lack of interested buyers given the backwardated spreads and expectations that premiums could fall further.
- The US Midwest premium fell to 8.6-9.0 cents per pound from 8.75-9.25 cents - spot demand has slowed to a drip and most consumers are well covered to start the second quarter.
- "We're not at 8.5 cents yet but we're not far away either. There's not much spot business - people are still winding down their 2015 volumes. The lack of business has become noticeable. Some of that has to do with the winter so in a couple of weeks we could see a pick-up. But I have grown a little more pessimistic [about the US]" - producer source.
- The forward curve for the CME Group's Aluminium MW US Transaction Premium (AUP) contract has moved deeper into backwardation. The March contract is now trading at just 8.0 cents per pound while April-December rates are at 7.75 cents and every 2017 month is at 7.25 cents.
- "There's a lot of metal around. Financing inventory doesn't work at these spreads so the queues will continue to fall. And if you're consumer, there's no hurry to buy because premiums should come down further" - US trader.
- In Asia, the major Japanese ports (MJP) spot premium dropped $5 at the top end of the range to $110-115, reflecting the downturn in demand stemming from the tightening in LME spreads.
- Negotiations for second-quarter ingot supply contracts have started - all major producers tabled initial offers of $125-130 this week.
- While many had been bullish for aluminium premiums this year - particularly following Rusal's prediction of a 1.2-million-tonne deficit in 2016 - the offers suggest producers have been more cautious than expected, sources said.
COPPER PREMIUMS DOWN $10/T IN SHANGHAI AS ARB TURNS SOUR; US ALSO LOWER
- Copper premiums took a hit in Shanghai this week - the market there struggled to digest a recent influx of cathodes and amid a negative import arbitrage.
- Premiums in Shanghai sank to $75-85 per tonne on a cost, insurance and freight (CIF) basis, their lowest since January 5, with shipments into the port in recent weeks killing off excess demand for bills of lading.
- Demand in the Chinese market has not picked up as many had hoped since the end of the New Year holidays. Premiums have given way amid increased availability of metal.
- Given the rises in the LME copper price to $4,720, arbitrage trading has been stymied.
- "The physical [LME-SHFE] arb is getting more and more negative and the funding arb has also gone... Now the arb almost offsets the entire premium so larger traders will be happy to sell stocks to the local market" - trader in Shanghai.
- Premiums firmed in South Korea to $85-95 CIF thanks to strong demand for cathodes to replace recently reduced production from key supplier Zambia.
- Traders also noted increased interest in Singapore and Rotterdam for specific brands; premiums for LME warehouse warrants in Singapore edged up to $15-20.
- European premiums are stable at $55-60 per tonne CIF Italy amid solid but unspectacular demand for cathodes.
- The US copper premium fell this week to 5.25-5.75 cents per pound delivered to the Midwest from 5.25-5.9 cents previously.
- "There's not much activity for traders. There are a lot of consumers that rolled over some material last year so pretty much everyone is well covered at low premiums. We're also hearing that end-market demand isn't all that strong" - US trader.
NICKEL PREMIUMS DOWN IN CHINA, STABLE ELSEWHERE
- Nickel premiums edged down to $150-170 per tonne in Shanghai but rates held steady in other regions - spot interest was conspicuously absent.
- In Shanghai, spot rates for full-plate nickel were last at $150-170 per tonne, down from $160-180 last week, due to the negative LME/SHFE arbitrage.
- "The drop in premiums was purely because of the arbitrage window. We all saw premiums shore up to nearly $200 in mid-January but now everything has calmed down" - Shanghai-based trader.
- Elsewhere in Asia, premiums held steady at $50-60 per tonne in Singapore and Malaysia while spot premiums for briquettes in Singapore were at $5-15.
- "Nickel full-plate is in tight hands in Singapore - it's hard to get metal out" - trader in Singapore.
- On the LME, on-warrant nickel stocks in Singapore were around 7,422 tonnes today.
- In Europe, premiums were unchanged at $40-60 per tonne for full-plates in Rotterdam while briquettes were last at $30-50.
TIN PREMIUMS UP IN SINGAPORE, STABLE ELSEWHERE
- Spot tin premiums rose in Singapore due to tighter supply from Indonesia and the closure of smelter Refined Bangka Tin (RBT).
- Spot premiums in Singapore have jumped to $200-250 per tonne from $100-200 for low-lead tin and to $80-110 from $60-90 for 99.9 percent purity metal.
- "A few people got their annual supply from Indonesia and RBT was one of the [suppliers]. We have seen them selling more volumes on a monthly basis to their customers to liquidate their stocks. If someone has to buy on the spot market, he has to pay higher premiums" - tin trader in Singapore.
- In Europe, rates in Rotterdam were last at $350-400 for 99.99-purity metal and $450-500 for low lead, with decent enquiries reported for in-warehouse material.
ZINC PREMIUMS FIRM IN INDIA, STABLE ELSEWHERE
- Zinc premiums in Shanghai held steady this week - trading was sluggish while the import arbitrage window was closed.
- Premiums for zinc ingots held at $105-120 per tonne in both Shanghai's bonded zone and CIF, with top-quality brands quoted at the higher end.
- The closed physical arbitrage window, weak end-user demand and rising stocks in Shanghai bonded zone are capping buying appetite.
- "It's really hard to sell zinc now - we've seen lots of offers in the market but trading volume is extremely thin" - local trader.
- Indian zinc premiums have firmed due to a temporary drop in local production, with premiums reportedly up at $175-185 per tonne.
- In Europe, the spot market has remained relatively quiet - many buyers have secured tonnages on long-term contracts.
- In-warehouse premiums were unchanged in Rotterdam at $130-145 per tonne on a duty-paid, free carrier agreement (DP FCA) basis while rates in Italy were at $160-170 per tonne DP FCA.
- Premiums also held firm in the US, where demand for zinc from the steel industry has been soft of late.
- "[At the International Zinc Association conference], there was a lot of talk about the supply but people were glossing over demand. The most optimistic forecast I saw was for three percent [global] growth and there were some people that said China will be flat or even negative. That's not a good demand story" - US zinc trader.
LEAD RATES SOFTER IN TAIWAN, EYES ON INDIAN MINE ISSUE
- Premiums for higher-purity lead in Taiwan dropped this week due to low demand; rates for 99.99 percent lead eased to $125-135 CIF.
- Spot premiums for 99.97 percent purity lead, used by most of the market, were stable at $80-100 CIF in India but there has been little trade in the past week, sources noted.
- "Locally supplied lead is enough to cover the market and is cheaper than metal from LME so no business was done in India" - trader in Europe.
- Still, reported mine production issues in India have been the talk of the market, with participants in disagreement as to whether it would affect the physical market for refined lead.
- "The mine issue really hit the zinc market and [its impact on] lead is around the corner" - trading source.
(Editing by Mark Shaw)