London 07/06/2016 - Trends in physical markets diverged over the past week, with forward spreads strongly in focus.
Huge deliveries out of China pushed up LME copper stocks this week, easing spreads. Cash/three month last traded at $4 contango - at this time last week it was at a $26 backwardation.
"Spreads are having a big impact - they normally do but this week maybe more so than usual," a trader in London said.
LME zinc peaked at above $2,000 per tonne on Monday, with physical demand picking up in key markets such as the US and India due partly to anti-dumping measures on Chinese exports.
For aluminium, producers and consumers are locked in negotiations for third-quarter MJP supply contracts.
"Everyone's too scared to make any moves at this moment. I think these negotiations will drag on to July," a trader in Japan said.
Elsewhere in Asia, the Chinese market has been quiet ahead of the Dragon Boat Festival from this Thursday and the four-day weekend national holiday there.
"There's not so much business and demand is still very weak," a trader in Shanghai said.
COPPER SPREADS SHIFT TO CONTANGO AFTER STOCKS RISE 28 PCT, EUROPEAN WARRANTS FIRM
- Copper premiums remain at low levels after a 28-percent jump in LME stocks on Monday and Tuesday.
- Stocks rose 21,250 tonnes on Monday and 22,200 tonnes today because of Chinese deliveries earmarked two weeks ago. Warrant traders reported a sudden increase in availably of Xiangguang Copper and South American warrants in LME clearing on Tuesday.
- As well as pressuring LME copper prices to a one-week low on Tuesday, the additional tonnages have eased LME forward spreads.
- "The spreads eased to [almost] full contango, which we haven't seen in a long while" - trader in Europe.
- Contango spreads should provide some support to premiums, with holders able to cover the costs of carry.
- "They may calm down a little bit and not be in such a hurry to desperately dump cargo into the market, which we have seen in the past few months" - trader in Shanghai.
- "It will provide support for the spot market even though spot has been very, very weak for more over a month now" - producer source in Shanghai.
- Large shipments of copper out of China are indicative of a sluggish domestic market, sources said, for at least two weeks ago since they were prepared.
- Premiums for cathodes in the Shanghai bonded zone and for nearby cost, insurance and freight (CIF) delivery remain at $40-50 per tonne.
- But in-warehouse copper cathodes premiums for copper warrants in Europe firmed to $25-35 per tonne from $15-25 last week due to dwindling European LME stocks.
- Available warrant stocks in Rotterdam have fallen to 3,950 tonnes this week from 5,775 tonnes on May 31 and 8,225 tonnes two weeks ago.
- "We've seen more people looking for copper warrants this week" - London warrant trader.
- The US Midwest delivered copper premium solidified this week at 6.0-6.5 cents per pound due to an extended period of scrap tightness.
- "Scrap is so tight they're off-loading straight from the trucks into the bailer. It's not sitting around before being processed" - copper tube producer.
- 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.
ALUMINIUM RATES STABILISE, EYES ON Q3 MJP DEALS AND SPREADS
- Spot aluminium trades in Japan are at stable premiums of $90-95 per tonne CIF, with the bulk of business done in that range although several small deals for quantities of 25-50 tonnes were reportedly done above $100.
- "Anything above 100 tonnes has been devastating easily under $95" - trader in Japan.
- Some offers for third-quarter ingot supply have fallen to $100 per tonne for delivery to major Japanese ports (MJP) while stocks are falling from high levels and demand is tepid. Others are still holding out for $110.
- Negotiations continue; most consumers are holding out for a two-digit settlement, down from this quarter's $115-117 per tonne
- Premiums elsewhere in Asia have also been steady at $90-100 per tonne CIF Shanghai in extremely thin trading volumes while the physical arbitrage window is firmly closed.
- Premiums in European market are under downward pressure while nearby LME forward spreads have tightened - June-July briefly moved into a small backwardation on Tuesday.
- "It's a spread-driven market and we feel the pressure due to the tighter spread - but we haven't seen any major change in the market so far" - local trader.
- Ingot premiums in Rotterdam stood at $70-80 per tonne duty-unpaid and $120-135 duty-paid.
- Premiums in Italy and Turkey held at $160-170 DP on a free-carrier agreement (FCA) basis and $120-130 on a DUP FCA basis respectively but additional tonnages are generating some downward pressure.
- The US Midwest aluminium premium remains in a wide range of 7.25-7.9 cents per pound but there were fewer deals below 7.5 cents this week - most business was done around 7.75 cents.
- "There just isn't any oomph behind US premiums. The contango is weak too and there are concerns that there will be continued periods during which the forward curve will squeeze into backwardation. This disincentivises financing cash-and-carry" - US trader.
- The US remains the best global market both for demand and premiums but it continues to attract large volumes of imports from Russia, the Middle East and even Asia - several traders noted that 20,000-30,000 tonnes were recently shipped from Singapore to the US.
- But the US has a large structural deficit - this year the country will consume around 6 million tonnes of metal but will only produce about 700,000 tonnes of P1020.
- "People don't really realise how big the deficit is here. Yes, the imports are high but we need that metal. So we might see pockets of discounts if metal builds up in ports but there is underlying long-term support for premiums" - second US trader.
ZINC PREMIUMS UP IN US, OTHERS UNCHANGED
- Zinc premiums edged up slightly in the US while holding steady in other markets amid a lack of interest.
- The US premium for special high-grade (SHG) zinc ticked higher to 6.75-7.10 cents amid strong domestic galvanising production due to new anti-dumping tariffs on corrosion-resistant steel imports from South Korea, China, India, Italy and Taiwan.
- "We thought that US premiums would trend up in late third or fourth quarter but now that might happen sooner than expected [because of these duties]" - producer.
- In Shanghai, premiums were last at $95-110 per tonne in thin liquidity due to the closed arbitrage window between the LME and the SHFE.
- "Premiums now have been indicative only as there is literally no trade happening in Shanghai. Most traders have sold out and are only delivering on their long-term contracts" - trading source in Shanghai.
- The difference in bids and offers in the spot market are as wide as $20-30. Some trading houses expect premiums to fall further.
- "Even if the arbitrage is closed, producers have to sell at some point and lower their offers. I would be willing to stock up at around the $80 mark for premiums ahead of the potential arb opportunities in the second half" - second trading source.
- In Southeast Asia, spot rates were last at $95-110 per tonne FCA while premiums in India for duty-free material were around $220-230 per tonne, both unchanged from last week.
- "We have not been offering to India recently as there is no additional demand. Indian production is gradually catching up; the market believes it will be back to normal in July/August" - well-informed source.
- In Europe, rates for FCA duty-paid basis zinc ingots were last at 130-140 per tonne. Demand from consumers has reportedly slowed ahead of the summer.
LEAD PREMIUMS STABLE, MARKET AWAITS DIRECTION
- Premiums for lead have been steady but the market is sensitive to any downside pressure due to a lack of demand.
- "Premiums might be on the down trend because there is less demand from the market. Supply is quite sufficient. Also, we are approaching the summer season, which would indicate less consumption in the coming two months" - trading source.
- "There are more offers than bids in the market for three-nines purity lead. But I have not seen anyone taking material" - second trader.
NICKEL PREMIUMS HIGHER, DELIVERABLE MATERIAL STILL TIGHT
- Full-plate nickel cathode premiums across the world remained high this week due to a lack of SHFE-deliverable material in Asia
- In Europe, thin availability of lower grade material and a run of financing deals have lifted rates.
- Although stocks in Shanghai's bonded zone were quoted at 105,000-120,000 tonnes at the end of April, spot availability of SHFE-deliverable cathodes has kept premiums higher in China and surrounding regions.
- Full-plate nickel cathode premiums are trading at $150-190 per tonne in Shanghai - Norilsk Nickel's H1 cathodes remain at the higher end of the range.
- The arbitrage window between the SHFE and the LME is currently closed although the recent drop in the LME dropped created a brief opportunity for traders.
- In Singapore, Malaysia and Korea, H1 was heard at up to $80 on larger volumes while other brands that are non-SHFE-registered are slightly lower.
- In Europe, full plate cathodes are between $60 and $80 in Rotterdam despite large LME stocks. Much of the metal is locked up in financing deals, creating an artificial tightness that is bolstering premiums, traders said.
- Briquettes continue to climb, with large volumes of the smaller cuts now at three-figure premiums, while the lower end has risen further on news that most producers are sold out for the third quarter while scrap and ferronickel are already commanding high rates based on extremely thin availability.
- Briquettes in Europe are now trading between $80 and $100.
- For cut cathodes, standard Russian material remains around $200 while cheaper South American 4x4s have recently been offered at around $100, traders said.
TIN PREMIUMS IN SINGAPORE DOWN TO JANUARY 2016 LOWS
- Tin premiums in Singapore have dropped again - with RBT warrants widely available, three-nines tin fell to $50-80 per tonne, the lowest since January.
- 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 more enquires from trading houses.
(Editing by Mark Shaw)