PHYSICALS WEEKLY - Shanghai copper premiums rise on arb interest, ali/zinc lower

London 21/06/2016 - Physical markets were relatively mixed this week, with a slowing in activity already evident for the seasonally quieter summer months.

Still, volatility picked up across markets ahead of the all-important vote on the UK's future in the EU on Thursday - the outcome, which would have repercussions for metals either way, is too close to call.

Aluminium premiums across Asia edged lower despite a small improvement in the LME forward curve but oversupply and tepid demand have again allowed consumers to bid more aggressively for metal.

Copper premiums in Shanghai have moved off recent lows thanks to a more favourable arbitrage between London and Shanghai last week. Still, the window has since closed again, which is likely to cap any immediate upside, traders said.

As for the other metals, nickel premiums remain buoyed in Asia - particularly in Pacorini sheds - due to tight spot supply. Meanwhile, zinc premiums took a hit in India where the market reached saturation point; the rest were little moved.

COPPER RATES REBOUND FROM MULTI-YEAR LOWS IN CHINA, STABLE ELSEWHERE

• Copper premiums in Shanghai have rebounded this week from multi-year lows to $45-55 per tonne on a cost, insurance and freight (CIF) basis and bonded, up $5 up from the previous range but still far below the level of $90-100 in mid-February.
• "The market improved a little bit and we haven't heard anything below $45 recently" - local trader.
• Premiums have edged up since the arbitrage window opened briefly last week but have been stable at the current level after it closed again, sources said.
• "It's an arb-driven market now - no highlights from end-user demand and only few financiers are in this market" - second trader in China.
• The arbitrage window between LME and SHFE prices was open last week for the first time since before the Lunar New Year, according to FastMarkets and brokerage data.
• Still, the market is turning more active overall compared with last month - more enquires were reported but many sellers and buyers are in a wait-and-see mood due to the uncertainty about whether the arb will remain closed or not.
• "Most forecast that the arb will become better and are pinning their hopes on it" - third trading source.
• Chinese exports of unwrought copper and copper alloy surged 3.5-fold year-on-year to 84,984 tonnes in May. Year-to-date exports rose 48.3 percent to 163,197 tonnes and more are expected in the near future, according to market consensus. 
• In Europe, trading volumes picked up on restocking ahead of the summer holiday season. CIF Rotterdam held around $50-55 and premiums in Germany were $95-105 delivered - many factories plan to close for holidays.
• "The better premium is a temporary thing before the summer break. I hope we could come back after the holiday in September - we never came back last year" - trader in Europe.
• The US Midwest delivered copper premium remains well supported at 6.0-6.5 cents per pound amid continued scrap tightness and some modest restocking ahead of the summer vacation season.

ALUMINIUM PREMIUMS IN ASIA DROP LOWER IN LINE WITH AGGRESSIVE JAPANESE CONSUMER BIDS

• Aluminium P1020 ingot premiums have continued to trend lower this week despite a marginally improved forward curve on the LME.
• In particular, a lower premium in Japan has pushed all of Southeast Asia lower - spot premiums there fell to $80-90 CIF, the lowest since November 2015 and down from $85-95 last week.
• While most participants remain focussed on quarterly negotiations for third-quarter supply into major Japanese ports (MJP), rising port stocks and more aggressive bids from consumers both for nearby and quarterly supply have driven the spot market lower.
• Ingot stocks reversed the recent downward trend, rising a net 12,400 tonnes in May to 337,200 tonnes - up from April's 18-month low and the first increase since August last year.
• The CME's Japanese aluminium premium contract is now showing July, August and September prompts at a settlement of $84.
• In the quarterly negotiations, aluminium producers offering ingots for third-quarter delivery to Japan have lowered their suggested premiums to $98-105 per tonne. But consumers are bidding at $85-90, based on some aggressive offers from some overseas trading houses.
• Spot rates in Korea, Malaysia, Taiwan and Singapore have all moved down to $80-90 CIF.
• In Europe, aggressive offers as low as $110-125 were reported on duty-paid cargoes, slightly lower than $115-125 quoted last week. Duty-unpaid material remained at $65-75, a March 22 low.
• Meanwhile, the US Midwest aluminium premium was steady this week at 7.25-7.75 cents per pound but the pressure remains to the downside - the slower summer months are here and imports keep arriving.
• "US demand is fine - it's not booming but you wouldn't expect to be booming in the seventh year of expansion. In general, we have nothing to complain about. Every other market in the world is envious of us" - US trader.
• Shipments of aluminium extruded products by US and Canadian producers totalled 201,000 tonnes in May, a rise of 1.7 percent year-on-year. Sheet and plate shipments at 316,000 tonnes were down 0.2 percent.
• Still, global oversupply remains the central issue facing the industry - the US has been the favoured landing spot for excess metal for many months. Aluminium 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.
• "Everything is steady but there's no reason to feel too optimistic moving forward"- a trader who sees the US Midwest premiums falling below 7 cents in the near term.

SATURATED INDIAN ZINC MARKET SEES PREMIUMS FOR IMPORTS FALL

• Spot zinc premiums dropped in India - the market started to reach saturation point after months of aggressive duty-free imports.
• Premiums for special high grade zinc ingots fell to $175-195 per tonne for duty-free Korean material from $190-22- last week. Similarly, duty unpaid metal slipped to $135-150 from $145-155.
• Imports have been made to cover a shortfall relating to Hindustan Zinc's production issues earlier this year, although FastMarkets understands this has been resolved.
• And Korean material is readily available after an aggressive marketing strategy over the past two months.
• "It's just completely flipped - no one wants to pick any material up at the moment. Everyone seems like they've filled up till July" - trader in Asia.
• Similarly, premiums for low-lead material slipped $5 per tonne in Singapore and Malaysia, with the delta between brands narrowing.
• Shanghai remains at $95-110 per tonne, with the strong LME price for zinc of more than $2,000 per tonne - it is the best performer of the complex in the year to date - cutting off any potential import arbitrage.
• In Europe, premiums held at $130-140 per tonne duty paid free carrier agreement in Rotterdam, with Italy higher at $160-170 - spot orders are starting to slow into the summer months, sources said.
• The US premium for special high-grade (SHG) zinc was unchanged at 6.75-7.25 cents per pound but premiums are well supported following the imposition of anti-dumping tariffs on corrosion-resistant imports from South Korea, China, India, Italy and Taiwan.
• Imports of hot dipped steel sheets and strip into the US were just 922,000 tonnes through April, down 25 percent year-on-year.  

LEAD STABLE, FEW TRADES REPORTED

• Lead premiums remained stable around the world in illiquid trading conditions over the past week.
• In Taiwan, premiums were unmoved at $65-85 per tonne CIF for 99.97-percent-purity lead ingots and at $120-130 for 99.99 'four nines' ingots.
• "Most manufacturers are picky and are just buying by comparing the premium itself… [they are] not concerned by the grade" - trader in Asia.
• In India, spot premiums are unmoved at $55-75 per tonne CIF for 99.97 ingots and $120-140 for 99.99.
• "Earlier in June there was a bit of a shortage of secondary material but that has alleviated and there's a lot of material available now. Demand is tapering off because of seasonality" - second trader in Asia.

NON-DELIVERABLE NICKEL SLIPS IN SHANGHAI

• Spot premiums for most non-SHFE-deliverable nickel in Shanghai dropped to $140-160 over the past week - imports would incur a loss of around $182-212 per tonne at Tuesday's arbitrage ratio.
• But some traders claimed that Sumitomo's SMM brand cathodes are at a higher upcharge of around $150-170 due to limited availability in China and strong consumer demand.
• "Some Sumitomo material has been stockpiled by the SRB and some has been signed for LTCs - that's why it's hard to find" - trader in Shanghai.
• In contrast, premiums for full-plate SHFE-deliverable nickel cathodes were stable at $180-200.
• "The liquidity of Russian material is pretty strong - people are buying them simply for delivery purposes" - second local trader.
• Supply of ferro-nickel and stainless steel scrap has been tightening across Asia and in Europe, with consumers increasingly turning to refined nickel metal to combat the scarcity.
• Premiums for warrants in Europe remain at $60-80 for full plate cathode in Rotterdam warehouse.
• "There's a constant ask for it but there's still a split between the numbers asked by sellers and bids by buyers" - trader in Europe.

TIN UNCHANGED IN LIGHT TRADING

• Premiums for tin were unchanged in Singapore at $50-80 per tonne for Indonesian standard grade ingots of 99.9 percent purity.
• LME stocks remain high after a series of deliveries in May, mainly of Malaysian MSC, Chinese PGMA and RBT on-warrant.
• Tin with lead content of below 100 ppm remains at a considerable premium of $450-500 per tonne in-warehouse Rotterdam.
• "It's a bit more complicated to find the low-lead material and at the same time some companies are changing to only take it instead of 'three-nines'" - trader in Europe.
• Trading has been light while the European markets approach the typically quieter summer season and key producer Indonesia is in the midst of work holidays due to Ramadan but market participants generally indicated that they expect current premium levels to hold fast in the short-to-medium term.
• "As long as the Indonesians keep on doing what they're doing and as long as demand is subdued I see no reason why there should be a dramatic change in premiums" - second trader in Europe.

(Editing by Mark Shaw)