PHYSICALS WEEKLY - US ali, zinc rates slip on supply glut; copper, nickel stable

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London 28/06/2016 - Physical base metal markets were mixed in a week where equities and currencies took a hit from the UK's shock decision to exit the European Union.

Zinc and aluminium premiums fell in the US - formerly tight physical markets there are moving steadily into oversupply.

In China, the closed arbitrage window has ruled out importing - LME prices for base metals rallied on Tuesday and well-supplied domestic markets are capping buying appetite.

The metals are holding up better than other investment vehicles such as equities - three-month copper and nickel both rose strongly on Tuesday, hitting their highest for around two months, while zinc was at its best for two weeks.

Investment fund money is flowing into the complex in a flight from the volatile equity and currency markets after last week's 'Brexit' vote, some sources suggested.

But others, including a warrant trader, disagreed, playing down the impact on metals from the UK-EU split.

"It's very quiet on the physicals side... commodities are mainly driven by demand from China so things such as FX rates and macro incidents from China will have bigger impact," he said.


US MIDWEST ALI PREMIUM SLUMPS TO 5-YR LOW, FIRST Q3 MJP DEALS HEARD

  • The US Midwest aluminium premium fell to a five-year low of 7.0-7.5 cents per pound from 7.25-7.75 cents previously amid slowing spot demand and persistently high imports.
  • "There are a lot of long faces in the industry. To be frank - it's crap at the moment. I think we will see a six-cent handle by next week. It's going to get worse" - US trader
  • The forward curve for the CME Aluminum MW US Transaction Premium (AUP) contract has moved into a deeper backwardation. The June AUP contract settled on Friday at 7.643 cents per pound while each month from July to December closed at 7.0 cents.
  • Aluminium imports of ingot, scrap and mill products into the US and Canada (excluding cross-border trade) totalled 695 million pounds or 315,000 tonnes in April, up 14.5 percent year-on-year, according to the Aluminum Association.
  • "It's a tough market in the [US] Midwest. Demand here isn't as good as it is in the South plus you have [remelter] Matalco bringing on-line new capacity. That makes for some very tough negotiations - everyone is being brought down into the mud" - producer.
  • Matalco is now producing aluminium billet at its new plant in Lordstown, Ohio. It has sold 90 million pounds for 2016; within two years, its output will rise to 350 million pounds per year.
  • The fall in billet has been even steeper than that for P1020. The US Midwest delivered billet premium this week dipped to 10.5-11.0 cents from 10.75-11.5 cents but there are anecdotal reports that off-shore units are being offered for just 6-8 cents.
  • "We've already closed our casthouse for the Fourth of July. We have plenty of inventory to supply our commitments so it's not worth running during this heatwave" - producer source.
  • In Asia, meanwhile, market participants were largely focussed on finalising negotiations for third quarter supply. Initial deals have been done at $90 per tonne for delivery to major Japanese ports (MJP) with one producer, sources close to the matter claimed.  This is down 21 percent from the lower end of the second-quarter settlement at $115-117 and down 18 percent from initially offers from producers at $110 at the end of May.
  • The spot market, meanwhile, remained at $80-90 CIF, the lowest since November 2015.
  • Spot rates in Korea, Malaysia, Taiwan and Singapore are also all trading at $80-90 CIF, in line with Japan - demand is more than covered by supply and more aggressive bids from international trading houses are putting pressure on local rates.
  • In Europe, with spreads not particularly supportive and with demand also easily satisfied by ample supply, there are aggressive offers as low as $110-125 on duty-paid cargoes. Duty-unpaid material remained at $65-75, its lowest since March 22.
  • In Turkey, however, offers on duty-unpaid cargos are $100-110 free carrier agreement (FCA), down from $120-130 previously. Traders attribute this to availability of Iranian material below the prevailing market premium, which many billet casters are buying to get better margins at a time of depressed billet premiums.


COPPER RATES STEADY IN SHANGHAI ON THIN LIQUIDITY

  • Spot copper premiums were stable in Shanghai at $45-55 per tonne both CIF and bonded but liquidity remained thin due to the closed LME-SHFE arbitrage window.
  • With imports to China incurring losses of around 300-600 yuan per tonne for the most part, according to FastMarkets calculation and brokerage data, many traders kept to the sidelines. And with cash/threes last at a contango of $11.25 on Tuesday, traders are under no pressure to sell.
  • There are few reasons for premiums to rise ahead of the summer season given reduced orders from consumers, market participants said.
  • "Consumption is not good this quarter and is going to be worse in the summer" - trader in Shanghai.
  • "This year, domestic demand is very bad in China and I even got offers from China for grade A copper and off-grade cathodes, which is quite rare" - Asian trader.
  • But some expect premiums to pick up late in June and early in July due to a shortage of overseas cargos and tighter domestic supply.
  • The US Midwest delivered copper premium remained at 6.0-6.5 cents per pound amid continued scrap tightness but some participants noted that spot business is drying up ahead of the July 4 holiday.
  • In Europe, with some planned summer maintenance periods scheduled for the coming weeks, enquiries for spot metal picked up although not sufficiently to lift rates in the region. CIF Rotterdam held at around $50-55 and in Germany at $95-105 delivered.


LOW-LEAD ZINC PREMIUMS FIRM IN MALAYSIA, SINGAPORE; MIDWEST DOWN AS SUMMER SETS IN

  • Premiums for zinc firmed in Malaysia and Singapore over the past week on tighter availability. Premiums for high-lead zinc ingots climbed $5 to $100-115 per tonne duty paid FCA in both Malaysia and Singapore, while low-lead brands remained at $115-125 per tonne.
  • The Chinese import arbitrage window was closed over the week and should remain so if LME prices, which rallied 3.8 percent on Tuesday to $2,075 per tonne, hold at current levels.
  • In Europe, premiums are steady while some galvanisers start to prepare for the summer break and ease up on production. Premiums held at $130-140 duty-paid FCA Rotterdam.
  • "You're starting to see people turn less active; they covered most of their needs for the summer already so the spot market is quiet" - trader in Europe.
  • But the US premium for special high-grade (SHG) zinc edged down slightly to 6.75-7.0 cents per pound from 6.75-7.25 cents - the summer lull has set in.
  • Still, the US market continues to find some support from the imposition of anti-dumping tariffs on corrosion-resistant imports from South Korea, China, India, Italy and Taiwan.
  • LME zinc stocks jumped 17,625 tonnes on Monday, predominantly into New Orleans warehouses. Total LME inventories stand at 428,575 tonnes, with 362,175 tonnes in New Orleans. More than 200,000 tonnes is believed to be held off-warrant there.
  • Premiums on SHG zinc ingots were steady in Southeast Asia at $95-110 per tonne FCA. Some traders still see good demand in the region should tightness resume as expected in August.  
  • "Those who book on long-term contracts would have nowhere to put that metal because demand is not good" - an Asian trader 


LEAD PREMIUMS LOWER IN INDIA

  • Spot lead premiums dipped marginally in India this week and remain at low levels elsewhere, with demand static and the physical market largely oversupplied.
  • Premiums for 99.97-percent lead ingots slipped $5 to $50-70 per tonne CIF India.
  • Consistent supply of Iranian material continues to keep the market there soft, with non-Iranian ingots generally commanding a higher premium. Buying is taking place but at lower levels.
  • "Factories still need to purchase lead for batteries" - seller in the market.
  • Supply remains strong in Europe, with stocks having built up in the Spanish ports of Bilbao and Barcelona where warrants are available at $15-20 per tonne.
  • "In Spain there is big industrial use for lead and if they're delivering it onto the LME it means there is oversupply" - trader in Europe.


NICKEL PREMIUMS UP IN EUROPE, STABLE ESLEWHERE

  • Full-plate nickel premiums in Rotterdam warehouses edged $5 higher to $65-85 this week due to artificial tightness in Europe - metal is being locked away in financing deals, market participants said.
  • "Two banks are doing financing deals and they are in no rush to sell" - trader in Europe.
  • In Asia, Shanghai full-plate cathode premiums were steady at $140-160 per tonne CIF and in-bonded-warehouse for non-SHFE-deliverable nickel although imports would still incur a loss of around $180-195 at Tuesday's arbitrage ratio.
  • "Some Chinese end-users, who lack cash, prefer to import the metal regardless of the negative arb because they can pay back later for the imports but they have to pay cash if they buy domestically in most cases" - local trader.
  • Premiums for full-plate SHFE-deliverable nickel cathodes were stable at $180-200. Sumitomo Metal Mining is registering its SMM brand cathodes on the SHFE - the bourse is seeking more material to deliver against its contract, sources told FastMarkets.
  • LME warrants in Singapore and Malaysia were mostly unchanged at $30-80 for full plate, with SHFE-deliverable material at the top end. Briquette premiums remain weak at $5-10 in-warehouse on ample availability.
  • "It's still hard to find Russian brands and most Chinese clients only accept SHFE-deliverable material" - trader in Asia.


TIN PREMIUMS STEADY, EYES ON POTENTIAL POLICY CHANGES

  • Premiums for 99.85-percent purity tin were mostly unchanged in all locations. Premiums in-warehouse Rotterdam were steady at $350-400 for LME-registered 99.9-percent brands and spot premiums were last at $450-500 for low-lead tin.
  • "We're starting to see more and more interest as the price looks like it has potential upside. Technically, though, due to the sheer lack of stock on the tin front, it's continuing to increase premiums on the physical market" - trader in Europe.
  • LME tin stocks now stand at 6,085 tonnes and cancelled warrants at 1,230 tonnes, putting available stocks at just 4,855 tonnes.
  • Market attention is still on the possibility of China adjusting export/import policy to allow qualified enterprises to carry out processing trade of tin concentrate, according to a statement from the State Council.
  • Meanwhile, Chinese imports of tin ore and concentrates from Myanmar rose 87.9 percent year-on-year to 40,316 tonnes in May. This took year-to-date imports to 215,184 tonnes, up 94.7 percent on the same period of last year.
  • "The market will see a big change if China starts to move" - trader in Europe.

 
(Editing by Mark Shaw)



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