London 05/07/2016 - A flurry of technical and short-covering in the futures markets has put much of the physical metals sector on the sidelines over the past week and quelled any arbitrage-related demand in China for now.
The rallies on the LME and SHFE rallies appear to have run out of steam already - the metals ended in negative territory on the LME on Tuesday following the return of the US market on Tuesday following Independence Day celebrations.
Nickel rose above $10,000 per tonne for the first time since September 2014 but could not sustain the move, returning below that level on Tuesday.
The only real mover this week in the physical market was aluminium in the US, where weakness was seen following a wave of imports into the country since the start of the year.
There was no reported price or demand-related activity in lead and tin this week.
US MW ALI PREMIUM PRESSURED BY HIGH IMPORTS, STABLE ELSEWHERE
- The US Midwest aluminium premium slid to a fresh five-year low of 6.9-7.25 cents per pound from 7.0-7.5 cents as aggressively priced imports keep arriving.
- "You're counting your lucky stars if you can still sell for 7.25 cents but I doubt there are buyers at that level" - US producer.
- Imports of primary aluminium and alloy into the US during the first four months of the year totalled 1.37 million tonnes, up 19 percent year-on-year, according to US Geological Survey (USGS).
- The US has been the preferred location for metal from Russia, the Middle East and Brazil for the past six months but spot demand has dried up during the slower summer months.
- The Asian aluminium spot market is stable - premiums remained at $80-90 in Japan, South Korea and Taiwan on a cost, insurance and freight (CIF) basis.
- In Asia, attention remains on the conclusion of negotiations for the supply of ingots to major Japanese ports (MJP) in the third quarter. More deals have been heard within a range of $90-93 after initial deals at $90 last week, local sources confirmed.
- Still, many buyers are holding off from signing contracts in the hope that producers will lower their offers below $90 to reflect slow demand in Japan and high stocks at its ports.
- Premiums in China held at $90-100 CIF and in bonded warehouse, with traders highlighting the fall domestic stocks and potential restarts in the second half.
- European premiums were stable for a third straight week - with supply ample and demand stable, restocking demand is scant ahead of summer holiday season while near-term LME spreads fail to inspire.
- Rotterdam premiums are unchanged at $65-75 duty-unpaid and $110-125 duty-paid in-warehouse. Italy was also stable at $150-160 DP FCA.
COPPER RATES STEADY AMID WEAK DEMAND
- Copper premiums were stable this week in Shanghai due to the closed arbitrage window between the London Metal Exchange and the Shanghai Futures Exchange, with trading activity thin.
- Rates in Shanghai were last at $45-55 per tonne CIF and are seen remaining under pressure in the third quarter.
- "With the yuan falling further in the past week, in the short term we will not see premiums increase" - Shanghai trader.
- Copper's recent price rally is likely to be short lived, several trading sources said.
- Premiums for bonded Shanghai material were last at $45-55 per tonne, unchanged from last Tuesday.
- "They were some higher offers at around $58 per tonne but nobody concluded at this level" - second Asian trader.
- Shanghai bonded stocks continued to increase in June, hitting an 11-month high at 625,000-655,000 tonnes as of the end of the month, up from 610,000-640,000 tonnes at the end of May.
- With scheduled summer maintenance work taking place across Europe, enquiries for spot metal are slowing, particularly following a rise in the outright price. Some pre-maintenance stocking saw some increased activity towards the latter stages of June but this was not enough to lift rates - Rotterdam held at around $50-55 CIF and Germany at $95-105 delivered.
- The US Midwest delivered copper premium is struggling to hold in the current range of 6.0-6.5 cents per pound because most consumers are now well covered for the summer, which negates some of the recent tightness seen in scrap.
- "It's too early to say that US premiums are falling but do think we will see some downward movement in the next couple weeks" - US trader.
NICKEL PREMIUMS UNCHANGED BUT PRICE SURGE ABOVE $10,000 COOLS SOME SPOT DEMAND
- Full-plate nickel premiums in Shanghai were $140-160 per tonne both on a CIF and a bonded basis for non-SHFE-deliverable brands while deliverable brands fetched higher premiums of $180-200.
- Enquiries have dwindled this week after nickel prices broke through $10,000 per tonne on Monday on to worries that a "comprehensive review" of mining concessions in the Philippines would lead to closures and cancellation of projects.
- In Shanghai's bonded zone, nickel stocks fell in June to a five-month low of 65,000-75,000 tonnes from 80,000-90,000 tonnes in the prior month due to an improved arbitrage between the London and Shanghai markets.
- Lower-grade nickel products continue to attract higher premiums due to tightness in the scrap and pig iron markets. Ferro-nickel containing 25-35 percent are attracting premiums well above $200 in Asia - all producers are sold out of spot tonnages for the rest of the year, sources said.
- In Europe, high premiums were again reported on briquettes - traders and consumers are keen to secure tonnages given tightness in ferro-nickel and scrap. Rates are as high as $150 although much of the market is still in a range of $80-100 per tonne.
- Most producers are sold out of briquettes for the third quarter. This is likely to exacerbated by news that Sherritt International has started a 14-day shutdown at the Ambatovy nickel/cobalt mine in Madagascar; it has brought forward maintenance activity originally scheduled for August.
- Full plate cathodes in Europe are also still commanding higher rates of $65-85 per tonne in-warehouse Rotterdam because of artificial tightness - metal is being locked away in financing deals, market participants said.
UNFAVOURABLE ARBITRAGE SEES NO CHANGE IN ASIAN ZINC MARKET
- Spot premiums for special high-grade zinc in Shanghai were last at $95-110 per tonne due to an unfavourable LME-SHFE arbitrage between the LME and the SHFE, as was the case in the previous week.
- "The loss on imports was around 1,000 yuan per tonne at one point last week - it does not make sense to move metal to the domestic markets" - Shanghai zinc trader.
- In Shanghai's bonded zone, zinc stocks increased to a 10-month high of 113,000-127,000 tonnes as at the end of June, up from 110,000-125,000 tonnes a month previously.
(Edited by Mark Shaw)