London 10/05/2016 - The sharp pullback in futures prices over the past week has stirred up some enquiries in the physical metal markets, especially in the US, which continues to have the best demand profile.
Several LME base metals fell to four-week lows on Monday following the release of soft Chinese import data over the weekend.
While this retreat might be indicative of stuttering economic growth and lacklustre confidence there, these more attractive LME and SHFE prices could prompt some opportunistic buying from consumers who were scared away by the higher tags in April.
Still, most global premiums remain depressed because most of these markets remain oversupplied and the arbitrage window into China is closed. Consumers and warehouse companies therefore have leverage in spot negotiations.
Aluminium outside of the US in particular is battling several factors beyond the price - oversupply and new LME warehousing rules are currently creating a more competitive environment for consumers to demand lower premiums.
EUROPEAN PREMIUMS DOWN DESPITE LOWER PRICE, US DEMAND PICKS UP
- Spot US aluminium demand picked up this week but the Midwest premium remained at 7.75-8.0 cents per pound in what is still very much a buyers' market.
- "We're getting more enquiries. People are considering topping off at these lower prices but they're not willing to pay higher premiums. We will move some decent volumes over the next couple weeks but I can't see premiums increasing in any meaningful way" - US trader.
- The forward curve for the CME Group's Aluminum MW US Transaction Premium (AUP) contract remains remarkably flat, suggesting that premium could remain stable for the rest of 2016. The AUP May contract was last at 7.8 cents per pound while every month out to June 2017 was at 7.7 cents.
- Outside of the US, aluminium premiums have come under pressure despite the relatively healthier forward curve and cheaper LME price - buyers are generally scarce.
- LME aluminium hit its highest in July 2015 on April 29 at $1,686 per tonne but has since dropped back to around $1,550. Cash-3s was last at $18 contango.
- Although the spreads and lower price should be supportive of premiums, in-warehouse metal in Rotterdam has dropped to $75-85 per tonne for duty unpaid from $75-90 last week. Duty-paid material also edged lower to $125-140 per tonne although conditions are again illiquid.
- With new warehousing rules now in play, units are being cancelled in, for example, Vlissingen and are therefore likely to be available soon, traders said, allowing more competitive bids in the market and putting holders of metal under more pressure to lower their offers.
- "Consumption is OK but ultimately the problem is that people see these cancelled warrants and they know that there will be cheaper units on the market soon so they hold out for lower premiums... I might offer $90 but I'll lose the business" - trader in Europe.
- In Asia, illiquid conditions - particularly following the Golden Week celebrations in Japan last week - have started to shake up on what has been a fairly static market in Japan.
US COPPER CONTINUES TO MAKE GAINS, SHANGHAI TERMS UP FROM BOTTOM
- The US is currently the best global region for copper, with premiums climbing to 6.0-6.5 cents per pound from 5.75-6.25 cents due to strong rod demand, an exceptionally tight secondary market and a sudden lack of available off-grade material.
- "It's a pretty bleak scenario outside of the US but we're holding our ground here" - US trader.
- The US scrap market recently tightened due to a major surge in purchasing from several rod producers that have absorbed significant amounts of both primary and secondary material.
- "Scrap isn't there. We have multiple people bidding on the same destinations and the same lots" - trader
- The tightness might last five or six more weeks, he suggested.
- In Asia, copper cathodes edged off the bottom in Shanghai - CIF premiums climbed $5 to $45-55 per tonne, level with bonded material.
- Despite a falling LME price, the import arbitrage window remains firmly closed amid ample supply, with more Brazilian material seen in the market.
- In April, Brazil exported 14,059 tonnes of copper cathodes, up from 2,432 tonnes a year ago. Of last month's total, 14,055 tonnes were shipped to China.
- Bonded copper stocks rose 10 percent to 580,000-610,000 tonnes by the end of April from 530,000-550,000 tonnes a month previously.
- In Europe, copper premiums were unchanged as they have been for the past three months. Grade-A cathodes were at $50-55 per tonne CIF Rotterdam.
- "Demand in the first quarter was good but now it's slowly falling… there's no problem with availability" - consumer in Europe.
ZINC SOFTENS IN EUROPE, MIXED IN ASIA
- Premiums for zinc softened in Europe - more material was offered into the market while demand is stable.
- Zinc ingot rates slipped $5 over the past week to $130-140 per tonne duty paid, free-carrier agreement (DP FCA) in Rotterdam.
- "Zinc seems to be softening in Europe… we've had more offers in Rotterdam and Vlissingen" - trader in Europe.
- Asian markets are largely unchanged. Terms into Shanghai are still at $95-110 per tonne over LME prices for material in bonded warehouses or aboard ship.
- "$110 per tonne is the maximum payable there" - seller.
- Southeast Asia rates have firmed slightly, however, nudging $5 higher to $60-70 per tonne in Malaysian warehouses but trades are thin on the ground.
- Traders reported stronger sales in the Middle East, where low-lead zinc is fetching premiums of $170-180 per tonne FCA.
- "It has been very calm for the last six months but now there has been an increase in demand. With low oil prices, governments are boosting infrastructure and supporting manufacturing" - seller.
THREE-NINES LEAD UPCHARGE SLIPS IN ASIA
- Lead physical premiums dropped this week in Asia, reflecting increase offers of Iranian material there.
- Premiums for 99.97-percent-purity lead softened in Taiwan to $65-85 per tonne over LME prices, which over the past week have given up the strong gains they made in April.
- "For 'three-nines' there are quite a lot of offers from Iran, India and Russia - it's very easy to get material but nobody wants it yet" - trader in Asia.
- The Indian market tells a similar story - premiums for 99.97 ingots are also down to $65-85.
- "May last year was much busier and the second quarter should be bus. In June it will be completely dead so maybe we should all pack our bags and go on holiday… it won't be busy in the summer" - trader in Europe.
NICKEL PREMIUMS RANGE WIDENS IN SOUTHEAST ASIA, STABLE ELSEWHERE
- Premiums for full-plate nickel cathodes widened in Singapore and Malaysia to $35-55 per tonne in-warehouse. Russian brands were quoted at the higher end and non-Russian brands at the lower end.
- "I rarely see offers of Russian brands in Southeast Asia as most of the SHFE-deliverable material has already been shipped to China while non-Russian ones are much more available" - trader in Asia.
- But briquette premiums were still weak at $5-10 in-warehouse while availability is ample across Singapore and Malaysia.
- Spot nickel premiums in Shanghai were stable at $130-160 over the past week - the arbitrage window has improved but remained negative, incurring a loss of around $46-61 per tonne on imports, up from $153 last Tuesday.
- Premiums for full-plate nickel warrants in Rotterdam held at $55-65 per tonne although some offers of Russian material were heard above this range. Still, no concluded deals were reported.
- In Europe, big banks sitting on high stocks to take advantage of the contango and lower warehouse rents, one dealer said, adding that banks are only willing to sell in large volumes.
TIN MOSTLY STEADY, LIMITED IMPACT SEEN FROM RBT'S FINAL EXPORTS
- In the tin market, demand remained stable globally. End-users are well covered and there is little spot interest.
- Premiums for 99.9-percent-purity tin were stable at $350-400 per tonne in-warehouse Rotterdam where they have been for the past month.
- "From late March to early May, the market has been very slow - no enquiries, no take-offs" - trader in Europe.
- Shuttered Indonesian smelter RBT shipped its remaining tin stocks out of the country during April, chartering an entire ship to haul around 1,750 tonnes to Singapore.
- "Premiums-wise, there's no big impact from this as all the material is snapped up by several brokers for every month" - trader in Europe.
(Editing by Mark Shaw)