PHYSICALS - US copper premiums underpinned by tight scrap, falling warehouse stocks

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Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Winter Park, Florida 26/05/2016 - The physical copper market in the US has suddenly become much tighter because scrap is hard to source while Comex and LME warehouse stocks have fallen.

This new trend started around the second week of April when several large rod producers and brass mills went into the spot market to restock on scrap. In particular, SDI La Farga in New Haven, Indiana, bought 10-13 million pounds of copper scrap last month, several sources said.

"Everyone just assumed that there was plenty of scrap around to meet demand. But there wasn't enough so people have been sent scrambling since," a US-based trader said.

Scrap brokers were forced into the primary copper market, which has generated demand for both off-grade material and grade A cathode.

"Scrap remains tight - really, the overall [US copper market] is tight. Traders aren't holding onto material very long," a US-based trader said.

This in turn has boosted the US Midwest copper cathode premium, which is firm at 6.0-6.5 cents per pound and is about a full cent higher than at this time last month.

The supply squeeze has also been reflected in warehouse data. Stocks in LME-listed sheds in New Orleans are now at just 45,800 tonnes, down 30 percent from April 1. Cancelled warrants, meanwhile, have climbed to 17,550 tonnes.

Several market observers have attributed the decline in LME inventories to a large trading house attempting to tighten the market.

"The usual copper suspect is having a play. The spreads had started to ease but with more material moving off-warrant the likelihood of a stronger back increases," an LME trader said.

But there might also be some fundamental justification, especially considering that Comex warehouses have also seen sizeable outflows. Comex copper stocks at 61,818 tonnes are down 14 percent since the start of April.

(Editing by Mark Shaw) 



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