Winter Park, Florida 18/05/2016 - The US copper premium has edged up to a one-and-a-half-year high, with a somewhat perplexing bout of scrap tightness forceing secondary metal brokers into the primary market.
The Midwest premium this week was firm at 6.0-6.5 cents per pound, up from the lacklustre range of 5.0-5.75 cents seen from January until mid-April.
"This situation with scrap seemingly happened overnight around the second week in April. Ever since then, our phone won't stop ringing," one US-based trader told FastMarkets.
A notable surge in purchasing from several copper rod producers has absorbed significant amounts of both primary and secondary material. In particular, SDI La Farga in New Haven, Indiana, bought 10-13 million pounds of copper scrap last month, several sources said.
But the real turning point for cathode premiums came earlier this month at the American Copper Council (ACC) spring meeting in Arizona.
"ACC was a totally different type of conference this year," a producer said. "Normally, it's a vacation where people bring their family and maybe do a half-day of work. This year there were very few families - it was all business."
"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. They are getting desperate," the trader added.
In lieu of scrap, many US brass mills and rod producers are looking to buy off-grade copper but metal holders said that there is little incentive to offer steep discounts unless it is really rough material.
"People need Grade A metal but they don't want to pay Grade A prices," a trader said. "Off-grade material has become hot, which means that it's only going for a small 0.5-cent discount - so around 5.5 cents delivered to St. Louis."
But several market participants acknowledged that the scrap deficit could be a short-term phenomenon and premiums will not hold at these levels unless there is pick-up in more traditional spot cathode demand.
"The [cathode] premium is being propped up by a single pillar. Take that away and the market is back to 5.0 cents in a day. So I am not too bullish on premiums in the medium term," a second producer source said.
And in the broader market, copper futures for July delivery on the Comex division of the New Mercantile Exchange fell to a three month low of $2.055 cents per pound on Wednesday, down 3.4 cents for the session.
"The lower [Comex] price could support premiums. It might encourage some restocking by consumers, while some scrap yards will be reluctant to sell at a loss," the second trader said.
But the lower prices also reflect global fundamental weakness, especially in Asia. In Shanghai, rates for grade A copper cathodes were unchanged at $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," a Chinese trader said.
And in Europe, premiums in Rotterdam are steady 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 in premiums," a copper trader in Europe said.
(Additional reporting by Dalton Barker and Vicky Chen, editing by Mark Shaw)