PHYSICALS WEEKLY - Most markets lack traction, some US rates edge lower

London 24/05/2016 - Most major physical markets were unchanged this week, with copper and aluminium in particular still struggling for any traction across Europe and Asia.

Large stockpiles are capping any immediate upside, particularly in Asia, while macroeconomic and geopolitical factors are also drag factors.

The threat of higher US interest rates in the next few months and a potential Brexit mean that "people just want to stand on the sidelines", one trader said.

"I've spoken to a lot of guys who have told me they've squared up their positions," he added.

With a potential US rate increase bolstering the dollar, most metals have given up some of the price gains eked out in recent months. But this has done little to revive physical buying, which remains slow.

ALUMINIUM RATES DROP IN US, STABLE ELSEWHERE

• Spot premiums for P1020 aluminium ingot slipped in the US while other regions were stable.
• The US Midwest aluminium premium finally came under some pressure this week, slipping to 7.5-7.9 cents per pound. The region's higher relative premiums have attracted fresh imports.
• Aluminium imports of ingot, scrap and mill products into the US and Canada (excluding cross-border trade) totalled 321,000 tonnes in March, up 10.3 percent year-on-year. Given the decline in P1020 premiums in Europe and Asia, this trend of rising imports could continue into the summer months.
• "Demand is still solid, especially because scrap isn't there. And most people who have purchased on long-term contracts are ordering at their max. But structurally there's a lot of downward pressure on the premiums [due to the imports]" - US producer.
• "It's slow - there's not a whole lot of activity out there this week. Some suppliers are starting to talk about 2017 but the users aren't in a big hurry" - US consumer.
• In Asia, premiums in Japan held at $95-105 per tonne on a cost, insurance and freight (CIF) basis. Some domestic tenders were reportedly made in the low $90s.
• "Demand is not so bad in Japan but people fear the backwardation might come back again and would be reluctant to buy at high levels" - trading source.
• CIF Shanghai premiums have risen to $90-100 per tonne from $80-90 due to improved LME-SHFE arbitrage opportunities.
• "SHFE aluminium prices have been improving recently and we have received more enquiries but the increase is not [end-use] demand-driven" - trader in China.
• In Turkey, premiums were last at $120-130 per tonne on a duty-unpaid on a free carrier agreement (FCA) basis, unchanged from last week.
• "We have seen increased supply for secondary aluminium production but a drop on the primary side" - trader in Europe.
• In Europe, spot rates were steady at $75-85 per tonne on a duty-unpaid basis in Rotterdam while duty-paid ingots were last around $125-145. There is limited scope for rates to climb in the coming months if the LME forward spreads are unchanged.
• In Italy, rates were last at $170-180 duty-paid FCA other than in the south where reduced availability put them at $175-180.

NICKEL RATES RISE AS RUSSIAN AVAILABILITY DRIES UP, ARB OPENS

• The opening of the arbitrage window for Chinese imports following a sharp reduction in LME nickel prices boosted premiums this week.
• Full-plate nickel cathode premiums rose to $150-190 per tonne in Shanghai bonded warehouses from $120-160 last week.
• Although stocks in Shanghai's bonded zine were at 105,000-120,000 tonnes at the end of April, spot availability is thin.
• "Lots of stocks are controlled by several big players who are not willing to sell. That's why the market premium has gone up a lot" - trader in Asia.
• Similarly, premiums on SHFE-deliverable cathodes have risen in locations such as Singapore and Rotterdam - in-demand Russian material is increasingly hard to source.
• Premiums for Russian full-plates were quoted at up to $80 per tonne in Singapore but non-Russian LME-deliverable cathodes were at $20-30.
• The European market is also tight. Premiums for briquettes remain at $50-100 per tonne while full-plate cathodes edged up to $60-80.
• "In Europe there's a tightness of material in general - it's not that easy to get hold of nickel today and if you want Russian full plate it's nearly impossible" - trader in Europe.

SINGAPORE TIN PREMIUMS SOFTEN AS RBT TONNAGES HIT MARKET

• Tin premiums have dipped in Singapore, with a large volume of RBT 99.9-percent purity ingots available as LME warrants.
• Premiums on three-nine ingots slipped $10 to $70-100 per tonne.
• Tin stocks in LME-listed warehouses in Singapore have risen 375 tonnes over the past week and have climbed around 100 tonnes per day since May 10.
• As well, PGMA, a Chinese low-lead brand, is available on warrant there.
• "They are unloading stockpiles amid lower domestic demand in China" - trader.
• Meanwhile, premiums in Europe have remained stable at $350-400 per tonne for 99.9 ingots.
• A producer source reported increased demand both in Asia and Europe, noting higher enquires from trading houses.

COPPER UPCHARGES UNCHANGED, HOLDERS CONTINUE TO WATCH LME MOVEMENTS

• Spot copper premiums in Shanghai remain near record lows despite a slightly better LME-SHFE arbitrage although it continues to generate a loss of 400-500 yuan per tonne.
• In Shanghai, rates for grade-A copper cathodes were last around $45-55 per tonne CIF and in-warehouse - consumption is dwarfed by supply in the world's most liquid copper market. Shanghai's bonded zone holds more than 600,000 tonnes, according to FastMarkets estimates.
• Importantly, holders of grade-A metal continue to ship material out of China and into LME-listed sheds in southeast Asia, where incentives of up to $60 per tonne are on offer
• Shipments, including from domestic smelters, are likely to continue while the spot market is much lower than LME-warehouse incentives, with some large tonnages earmarked for delivery.
• Instead, some traders in Asia have been focussing on the off-grade market, with some consumers choosing to purchase cheaper cuts of metal to cut costs.
• "The scrap market is tight - it's loosening a bit but still quite tight - so that's why we're more interested in that. There's an opportunity there and it's not as bad as the grade-A market" - trader in Asia.
• In Europe, premiums in Rotterdam were unchanged at $50-55 per tonne while rates in Germany were at $100-110 delivered, having edged higher last week owing to better demand around May.
• The US Midwest copper premium solidified this week at 6.0-6.5 cents per pound on a lack of available scrap and falling warehouse inventories.
• "Scrap continues to remain tight - really, the overall [US copper market] is tight. Traders aren't holding onto material very long" - trader.
• Availability of on-warrant copper in LME-registered warehouses in New Orleans fell to 32,425 tonnes on Tuesday, the lowest since December 2012. Market observers have attributed the decline in LME inventories to a large trading house attempting to squeeze the market.
• Several US brass mills and rod producers have recently increased production and have been in the market aggressively bidding on scrap and off-grade copper.

ZINC PREMIUMS DOWN IN US, EYES ON INDIAN MARKET

• The US premium for special high-grade (SHG) zinc slipped back to 6.5-7.0 cents per pound from 6.75-7.25 cents - an attempt to secure higher premiums was rebuffed.
• "The larger producers and big traders see higher premiums later in the year so they would rather hold on to their metal than to sell [to speculators]. And the consumers can still get metal at pretty good prices - supply is not that tight yet" - US trader. 
• In southeast Asia, premiums for high-lead zinc were unchanged in Singapore and Malaysia at $95-110 per tonne FCA over LME cash prices
• The metal is widely believed to be held tightly by major trading houses, which are in no hurry to sell in the hope of higher premiums later this year due to zinc's strong fundamental story.
• "We got enquiries constantly but no deals concluded due to a $20 bid-offer gap. The market has become lighter than it was a few months ago" - trader in Asia.
• The Indian market has still been in focus although Hindustan Zinc said it has resolved issues at its Rampura Agucha zinc mine. Premiums on non-duty-free material were quoted at $145-155 CIF, with duty-free at $220-230.
• "We've seen quite strong demand from India" - producer in Asia.
• The spot market was still dull in China amid thin buying interest for arbitraging - premiums were stable at $95-110 in bonded warehouse and CIF.
• The physical arbitrage window for imports was still closed, generating a loss of around $76 per tonne on Tuesday.
• Premiums in Europe remain largely stable at $130-140 duty-paid FCA over LME cash prices while rates in Italy were at $160-170 duty-paid FCA.
• Overall, demand is stable in Europe other than a slight pick-up from German galvanisers; some are pinning their hopes on a post-summer revival.

LEAD PREMIUMS MOSTLY STEADY AMID QUIET TRADING CONDITIONS, MARKETS SLOW

• Demand in Taiwan has been thin - most buyers are covered by long-term contracts. Premiums for 99.99-percent lead held at around $120-130 per tonne CIF Taiwan.
• In India, a key buying market, CIF premiums for 99.97 percent metal were also steady at $65-85. Russian and European brands were quoted at the higher end and Iranian brands at the lower end.
• "The Indian market is very slow at the moment. Indians usually don't stock lead after June and the market will be dead in the summer season" - trader in Europe.
• For India's 99.99-percent market, premiums were quoted at $120-140 per tonne CIF, with one offer for duty-free material heard as high as $200 given a domestic shortage of material.
• "It's quite possible for free-trade-agreement material to trade above $200" - trader in Asia.
• In Europe, premiums were largely stable amid thin spot buying interest. Delivered premiums for 99.97-percent lead in Italy increased $5 to $145-155 amid tight secondary supply.

(Editing by Mark Shaw)