London 12/07/2016 - Activity in the physical base metals markets was muted this week amid the typical summer slowdown but participants are closely watching the Philippines as well as recent copper deliveries into LME-listed sheds in Asia.
Nickel stepped into the spotlight after the Philippines government announced that it will audit all operating mines in the country while suspending the approval of new mining projects. In response, three-month LME nickel climbed to its highest since October 2015 today at $10,435 per tonne.
But the impact on the spot nickel market has been less clear cut. Premiums in Shanghai fell this week due to an unfavourable arbitrage ratio, while supply tightness in Europe boosted levels for full plate and briquettes.
Copper premiums in Shanghai were steady at relatively low levels thanks to a firmly closed physical arbitrage window and mild demand. And in the US, the Midwest copper premium slipped amid improved scrap availability.
Still, the biggest issue in the copper market has been the continuing large deliveries of metal into LME-registered warehouses, which are believed to be copper being re-exported from China.
"With treatment charges climbing, there is an incentive for producers to increase output, some of which seems to be finding its way on to the LME. But whereas LME stocks are rising, SHFE stocks are falling, especially now that the arbitrage window seems to be closed for most traders," FastMarkets head of research William Adams said.
Aluminium premiums in all regions were stable but there are concerns that rates will drop further in Europe and the US because of tepid seasonal demand.
Tin premiums were steady in Asia and Europe, although the latter is showing some signs of improved demand in recent data. Zinc and lead were largely neglected this week, with few reported deals and unchanged premiums.
PHILIPPINES MINING CLAMPDOWN HELPS LIFT NICKEL PREMIUMS IN EUROPE, ASIA
- Spot nickel premiums firmed in Europe - supply is tightening quickly and some market participants are covering after prices shot higher over the past week.
- LME nickel surged on news that the government of the Philippines suspended two major nickel miners on environmental grounds and will carry out an audit of the rest of its mining industry.
- As well, major producers supplying the European market are sold out or are close to selling out of briquettes and cathodes for nearby delivery.
- And although there are 259,038 tonnes of nickel on-warrant in Rotterdam currently, much of that metal is tied up in financing deals, sources said.
- Accordingly. spot physical premiums for cathodes have risen to $85-105 per tonne in-warehouse Rotterdam. Nickel briquette premiums are marginally higher at $100-120 per tonne for the same location.
- "Scrap remains tight and there's a perception that prices could go higher so some [stainless] mills have been covering some primary" - trader in Europe.
- But premiums are under pressure in the key market of Shanghai, with a higher LME price making imports into China more expensive.
- Premiums on SHFE-registered full plate cathode brands dropped $20 this week to $160-180 per tonne on a cost, insurance and freight (CIF) basis to the port of Shanghai.
- "We're still waiting for more clarity on the situation in the Philippines but, with higher prices, the arbitrage is not very good so it's not a good time for imports" - consumer in China.
COPPER DOWN IN US, STABLE ELSEWHERE; EYES ON SPREADS AND DELIVERY
- Shanghai copper premiums were stable for the fourth straight week at a low $45-55 per tonne CIF and in-bonded warehouse over LME cash prices.
- The wider contango in the LME cash/three-months spread - believed to be caused by the recent massive delivery of metal to LME-listed warehouses by trading houses, Chinese smelters and hedge funds - made those holding metal more comfortable with doing so.
- But the firmly closed physical arbitrage window between the LME and the SHFE, the recent yuan devaluation and weak domestic demand have dented business.
- Consumption may pick up thanks to post-flood reconstruction in China, some market participants suggested. But the recent heavy rains in the south of China have so far failed to underpin premiums because the disruptions seem to be minimal, sources said.
- Europe remained quiet amid a typical lack of buying interest during the summer season. Rotterdam was last quoted at $50-55 CIF while Italy widened to $55-65 CIF from $55-60 due to temporary tightness caused by some delayed shipments from Chile.
- "Our customers want to get the material before August when they close for the summer but the vessel was delayed due to some technical problems" - trader in Europe.
- Rising prices drew out more scrap, which weighed on demand for off-grade material in Europe, sources claimed.
- The US Midwest delivered copper premium slipped this week to 5.75-6.25 cents per pound from 6.0-6.5 cents, with anxiety over scrap starting to subside.
- "Premiums are a little softer but there's not much happening. Deals that got 6.5 cents a couple weeks ago might be closer to six cents now. There's not the same panic [in regards to the scrap shortage]" - North American producer.
- "[The brass mills] have covered and scrap units are being delivered into the market [due to the higher prices]. There's fewer people buying cathode and a bit more scrap so I think we will likely will see some lower premiums through the summer" - US trader.
ALI PREMIUMS STABLE GLOBALLY, PHYSICAL DEMAND TEPID
- Premiums on P1020 aluminium ingots were stable this week around the world due to a lack of interest during the typically quieter summer months.
- The US Midwest aluminium premium remains depressed at a five-year low of 6.9-7.25 cents per pound - an onslaught of imports has kept the market oversupplied.
- Imports of ingot, scrap and mill products into the US and Canada totalled 295,000 tonnes in May, up 14.9 percent year-on-year. Over the first five months of the year, imports rose 11.1 percent to 1.42 million tonnes, according to the Aluminum Association.
- "The pace of imports is slowing a little but they are still at very high levels and there's a lot of material on the ground. We're going to be in this 7-cent area for premiums until Labor Day [early in September]. I'm not expecting much good news for the rest of the summer" - US trader
- In Asia, rates were last around $80-90 per tonne in Japan, South Korea and Taiwan on a CIF basis.
- Deals for third-quarter MJP negotiations were mostly done at $90-93 per tonne although a few trading houses have yet to conclude with producers - levels outside the range have not been ruled out.
- "We are not in a rush to book for the third quarter… and [our] volumes will be quite limited" - Japanese trader.
- In Europe, rates were steady at $65-75 for duty-unpaid material while duty-paid ingots were at $110-125 per tonne.
- "It's a very quiet market… there is not much interest. Premiums are still under pressure, with the current spreads not attracting much interest" - European trader
- In Italy, rates were last at $150-160 per tonne on a duty-paid FCA basis, unchanged from last week.
ZINC PRICE INCREASE CONTINUES TO COOL SHANGHAI ARBITRAGE DEMAND
- Zinc premiums were unchanged this week - an increase in the LME price to just short of $2,200 per tonne on Tuesday will worsen the import ratio into China, reducing demand for the metal there.
- Instead, traders are more interested in taking advantage of a slight opening in the arbitrage window between material bought in Guangzhou and the nearby date on the SHFE.
- In Malaysia and Singapore, premiums remained marginally inflated by tighter availability. Premiums for high-lead zinc ingots were at $100-115 per tonne duty-paid FCA while low-lead brands remained at $115-125 per tonne.
- In Europe, premiums are steady - despite some enquiries for European warrants, most galvanisers are now into their summer breaks and are likely to lower production. Premiums were last at $130-140 duty-paid FCA Rotterdam.
- Stock movements were also more subdued this week, with a net 2,025 tonnes leaving LME-listed sheds after they jumped 17,625 tonnes in the previous week. Total LME inventories stand at 424,125 tonnes, with 363,600 tonnes of that total in New Orleans. More than 200,000 tonnes is believed to be held off-warrant there.
LEAD RATES UNMOVED BUT INDIAN DEMAND FOR SECONDARY MATERIAL SOLID
- Spot lead premiums were largely unchanged although demand in India for secondary material remains sturdy.
- Premiums for 99.97-percent lead ingots were last at $50-70 per tonne CIF India although some Iranian secondary material is still on offer below that range, sources said.
- In the Far East, premiums were unchanged although some warrant traders reported higher numbers in Port Klang for standard material. Malaysian premiums for 99.97 grade metal were last at $1-25 in warehouse.
- 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.
TIN PREMIUMS UNCHANGED BUT EUROPEAN DEMAND POSITIVE
- Tin premiums are stable, with no movement in Asia, Europe or the US.
- Markets are focussed on key exporter Indonesia, which slowed during the Islamic holy month of Ramadan, which ended with the Eid al-Fitry festival last Wednesday.
- Just 10 lots of tin have traded on Indonesia's ICDX so far in July; exports this month are therefore likely to be low.
- But tin traded in higher volumes than had been exported last month, several market participants noted, which could mean there is material in reserve ready to be shipped out.
- Premiums for 99.9 percent purity tin in-warehouse Rotterdam remain at $350-400 per tonne but demand has been healthy at a time when it might usually be expected to be waning due to the summer season.
- "Demand has picked up but it's pretty steady - there's enough tin out there and enough buyers" - trader in Europe.
- But prices have risen $900 per tonne since last Tuesday, which could keep the market contained.
- "It's probably capping a [premium] rise at the moment" - second trader in Europe.
(Editing by Mark Shaw)