London 14/06/2016 - Aluminium took centre stage in the physical metal markets this week - movements in London Metal Exchange forward spreads and global oversupply worries pushed its premiums lower in all regions.
The cash/three-months spread in LME aluminium moved to a backwardation of $3 today, which makes financing inventories more expensive. This could shift P1020 to a consumer market that is already awash with metal.
Copper premiums, meanwhile, remain near multi-year lows in Asia but better days could lie ahead. The arbitrage between Shanghai and London might soon reopen if current pricing trends continue, which would encourage a fresh wave of imports into China.
US copper upcharges remain well supported due to a persistent shortage of scrap and off-grade material.
As for the other metals, nickel premiums in Asia inched higher due to tighter spot supply while zinc was steady except in the US where rates rose amid new anti-dumping steel duties. The tin and lead markets were generally quiet.
US ALI BUCKLES UNDER IMPORT PRESSURE; EUROPE, JAPAN ALSO DOWN
- Aluminium ingot premiums came under further downward pressure in the past week, falling across global markets.
- The US Midwest aluminium premium slipped this week to 7.25-7.75 cents per pound from 7.25-7.9 cents due to messy LME spreads, high import levels and weak sentiment following a pessimistic Chicago conference.
- Aluminum imports of ingot, scrap and mill products into the US and Canada totalled 315,000 tonnes in April, up 14.5 percent year-on-year. In the first four months of 2016, total imports were up 10.1 percent to 1.12 million tonnes, according to the Aluminum Association.
- "Everybody and his mother has been shipping metal to the US for the last six months, which means the market could be saturated for the coming six to eight months" - European trader.
- "There's a glut of material globally and the least bad place to see it end up is the US because it's the strongest market" - US trader.
- Analysts at the Harbor Aluminum conference last week expressed concerns about soft Chinese demand and high global inventories.
- "One person told us that this this was the most depressing aluminium conference he has ever attended - and he was a consumer, no less"- INTL FCStone's Edward Meir.
- In Asia, spot premiums for P1020 ingots softened to $85-95 per tonne on a cost, insurance and freight (CIF) basis to Japan, a six-and-a-half month low.
- Third-quarter supply contract negotiations are in progress for Major Japanese Port (MJP) deliveries, with offers from producers currently in a range of $98-105 per tonne.
- Meanwhile, sources in and outside of China refuted claims that a group of aluminium smelters there had agreed to cut production if domestic prices fall below 11,500 yuan per tonne.
- "It's more like an announcement saying that 'we want to stick up the current aluminium price' - I don't think there's any real substance behind it" - trader in China.
- Premiums also dropped in Europe, falling $5 to a range of $65-75 per tonne - the lowest since March 22 this year.
- "Demand is better but on the other side there is still a lot of metal available" - trader.
SHANGHAI COPPER STATIC BUT HIGHER PREMIUMS SEEN BY MONTH-END
- Copper premiums remained near the lows of 2012, according to FastMarkets' records - it was last at $40-50 per tonne CIF and bonded - although the arbitrage between London and Shanghai has levelled off and may provide support in the coming sessions, traders said.
- Following last week's price fall - three-month copper ended the week down around four percent or $178 from Monday - the Shanghai price closed on Tuesday between parity and a small premium to the LME (plus logistical premiums) on nearby prompts.
- And SHFE stocks continue to fall while the pace of increases in the Shanghai bonded zone has slowed due to less availability in the domestic market. Concurrently, large deliveries into LME-listed sheds in southeast Asia have eased the backwardation on the forward curve - the benchmark cash-3s was last at $16 contango.
- "Premiums will definitely see some kind of recovery from the end of June because there will be a shortage of cargoes arriving in Shanghai" - trader on sidelines of LME Week Asia.
- But premiums are unchanged - traders are cautious given the yuan's recent fall against the dollar and while many are attending the LME's Asian conference in Hong Kong.
- Buying interest picked up slightly in Europe - some customers chose to take June deliveries prior to planned maintenance in July.
- Premiums in Germany were $95-105 delivered and in Rotterdam at $50-55 CIF.
- The US Midwest delivered copper premium solidified this week at 6.0-6.5 cents per pound - scrap tightness forced some consumers to pay higher rates for just-in-time cathode deliveries.
- "We're closing deals faster but we aren't gouging our customers. This scrap shortage isn't a permanent market feature - [the secondary market] will rebalance and when it does premiums will come down as fast as they went up" - US trader.
- Several US brass mills and rod producers have recently raised production and have been in the market aggressively bidding on scrap and off-grade copper.
ZINC PREMIUMS CLIMB IN US, FALL IN INDIA AND DUBAI
- The US premium for special high-grade (SHG) zinc rose to 6.75-7.25 cents per pound from 6.75-7.1 cents after mills increased their coated steel run rates following the imposition of anti-dumping tariffs on corrosion-resistant imports from South Korea, China, India, Italy and Taiwan.
- "We're at over 7 cents to all regions [in the US]. Supply and demand are mostly in balance but people are getting a little concerned about the third and fourth quarters. Our customers buy a lot of foreign stuff and they are having a tougher time finding it." - a North American producer.
- In India, premiums on duty-free material slipped to $190-220 - with some local sources claiming that Hindustan Zinc has more or less resolved its issues at its Rampura Agucha zinc min, the market is slowly returning to normal.
- "Indians are not buying as aggressively as they used to be" - trading source in Asia.
- Zinc trading in China is still slow, with premiums stable at $95-110 per tonne CIF and in bonded warehouse and CIF - unchanged since April.
- The physical arbitrage window was still firmly closed, with imports generating a loss of around $182-197 per tonne on Tuesday.
- In Jebel Ali, premiums for low-lead zinc dropped $5 to $165-175 on a free carrier agreement (FCA) basis. Additional tonnages are flowing to the market despite unimpressive local demand - there was an isolated offer reported at $140 this week.
- "Big trading houses are liquidating their positions there" - trader in Europe.
- Premiums for zinc ingots in Rotterdam were quoted at $130-140 per tonne over LME cash prices, a level they have roughly maintained since the start of May.
- "The European market is very quiet… People don't want to invest heavily before the referendum" - second trading source in Europe.
LEAD PREMIUMS DROP IN INDIA, STATIC ELSEWHERE ON SLUGGISH DEMAND
- For the 99.97-percent market, primary premiums were quoted at $55-75 per tonne on a CIF India basis, $10 down from previous range. Premiums for 99.99 percent lead held around $120-140 CIF India but these were indicative rates - no trades were reported.
- In India - a market that usually reacts to lower prices by lifting spot buying - spot trading has slowed due to ample domestic supply, the fluctuating rupee and lower-than- previous-year demand this summer.
- Lead premiums were unchanged elsewhere this week - spot demand is sluggish in Europe and Asia with most covered by long-term contracts; some are pinning their hopes on a post-summer revival.
TIN STABLE, INDONESIAN EXPORTS COULD SLOW
- Tin premiums remained stable this week at $350-400 per tonne in-warehouse Rotterdam for 99.9-percent-purity metal.
- "Demand is quite steady at the moment but demand from Asia is picking up" - trader.
- Refined tin exports from Indonesia totalled 5,378 tonnes in May, down 14 percent on the same period of 2015. Total exports from the country, a leading producer of the metal, are down 29 percent year on year.
- But Indonesian exports could slow in June, sources said. With Ramadan under way, many workers are unable to mine.
NICKEL FIRMS IN SHANGHAI AS SUPPLY THINS
- Nickel premiums firmed marginally in Shanghai, with some producers running low on stocks set aside for spot sales.
- Premiums for full plate cathodes firmed by $10 in Shanghai's bonded zone and on a CIF basis to a wider range of $160-200 per tonne.
- SHFE-deliverable brands were quoted at $180-200 while non-deliverable brands were valued at $160-180.
- "The market is up this week as less material is available and we heard numbers around $200 among traders" - local trading source.
- "We get many enquiries but have little cargo" - second trader in Asia.
(Editing by Mark Shaw)