PHYSICALS WEEKLY - US copper premiums drop on summer lull; ali, zinc, nickel stable

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London 26/07/2016 - Physical base metal markets saw limited action over the past week, with outright prices remaining close to recent highs despite coming off of last week's peaks.

Zinc and lead both hit one-week lows which nickel and copper fell to two-week lows on the LME today but several remain not far from their highest prices so far this year.

"Across the board people are less willing to buy at the moment because of the higher price but this is the case more so in zinc at the moment," a trader in Asia said.

As the market takes stock during the summer months, many buyers are watching prices to see if rises have been justified and whether the fundamentals indicate that a softening is due later in the year.

As well, high London prices are keeping the London-Shanghai arbitrage window closed.

"The arb is tightly closed and people are getting worried about the liquidity of the Shanghai market," a second trader in Asia said.


US MIDWEST COPPER PREMIUM DROPS IN LINE WITH SUMMER LULL, WAREHOUSE INCENTIVES LOWER

  • The US Midwest delivered copper premium has come under downward pressure, falling to 5.75-6.0 cents per pound from 5.75-6.25 cents amid light summer demand and an easing of the scrap squeeze.
  • "Cathode premiums are coming down. The higher Comex price has attracted scrap to the yards while the mills have covered their needs" - US trader.
  • "It might be a bit premature to say the scrap shortage is over but the discounts for bare bright and copper wire are increasing, which means more scrap is available. There aren't many people left who are replacing scrap with cathode" - US trader.
  • Elsewhere, Shanghai copper premiums were stable for a sixth straight week at a low $45-55 per tonne on a cost, insurance and freight (CIF) and in-bonded warehouse basis over LME cash prices. But falling warehouse incentives in nearby Southeast Asian sheds may act as a downside driver should the arbitrage window between the LME and SHFE remain closed.
  • Incentives have been heard as low as $30 this week, with the general range around $30-45 for Southeast Asian sheds to take metal on warrant, in line with the improved forward curve.
  • "This could be bad for the Chinese premium - incentives were acting as support for the Chinese market as it was taking material out of the sector, both long-term contracts and spot parcels" - Singaporean trader.
  • A negative arbitrage window - worsened by recent price rises and a continued fall in the yuan against the dollar - has also curbed interest in importing.
  • Smaller deliveries are likely to continue, however, while the bonded premium remains low and while traders with long-term contracts with producers in Asia and in South America continue to direct material to sheds, sources said.
  • In Europe, interest during seasonal maintenance period remains thin. Rotterdam was last quoted at $50-55 CIF while Italy was last at $55-65 CIF.


ALUMINIUM INGOT PREMIUMS LACK UPWARD IMPETUS, JAPAN RATES FALL FURTHER

  • Aluminium ingot premiums were stable again this week while the market moves deeper into the summer buying lull.
  • The aluminium P1020 market struggled for direction; rates in key consumer Japan fell $5 to $80-85 per tonne CIF although offers are emerging below $80, suggesting more downside scope in the near term.
  • As well, a large can tender towards the end of last week was concluded at $76-79 per tonne for forward delivery, FastMarkets understands.
  • "The spot market is around $10 below the quarterly benchmark, I have heard rumours there are already some traders offering below $80 too. Middle Eastern producers are also undercutting the market both for quarterly negotiations and indeed for spot supply" - Japanese trading house.
  • Japan's third-quarter aluminium ingot supply contracts were concluded at $90-93 per tonne. Most major consumers booked at $90, sources said, with smaller companies at the higher end.
  • "What’s the point of purchasing at MJP quarterly now? Producers need to change their strategy or they will lose their customers for next year for sure" - second Japanese trading house.
  • In Southeast Asia, warrant premiums remained low amid aggressive offers in Singapore and Malaysia for in-warehouse metal and similarly lower offers for off-warrant ingots in Korea.
  • Low premiums and unattractive financing opportunities are prompting a shift of sizeable volumes of off-warrant aluminium back to listed LME warehouses in Asia.
  • In Europe, premiums are still at $65-75 per tonne for duty-unpaid metal in Rotterdam warehouses while duty-paid is $110-125; rates have not changed since the start of June.
  • Some cheaper cargoes have been reported direct from producers outside of Europe and on duty-paid tonnages out of Rotterdam although these are largely aggressive offers to consumers to secure business, industry sources said.
  • Tight spreads - particularly the nearbys - are affecting trade. On the LME, the cash/three months was last at $10 contango, down from $16 last week; the cash-August date is close to level at $0.95 contango.
  • The US Midwest aluminium premium remains at a five-year low of 6.9-7.25 cents per pound - prices are weighed down by steady imports and soft seasonal demand.
  • "Spot activity is light due to the summer and shutdowns. Most people who are coming in are making up for a lack of scrap. But the US is still a good number versus the rest of the world, hence why material keeps flowing here" - US consumer.
  • "The market has accepted 7 cents - there's good support [at this level] but there's little chance they move higher [because there is too much metal around]. But premiums shouldn't fall much further so we could see some spot buying from consumers who were waiting for a bottom" - US trader.


NICKEL PREMIUMS STABLE AMID THIN LIQUIDITY

  • Nickel premiums were steady in China and Europe in thin trading conditions due to the closed arbitrage window and the dull demand that typifies the summer holiday season.
  • Shanghai full plate premiums were unchanged at $130-150 per tonne this week due to the negative arbitrage opportunities between the London and Shanghai markets - the loss on imports moved as wide as 4,500 yuan ($674) per tonne at one point this week.
  • "People have no interest in buying at the moment. There are only offers and no one wants to import as they will make a huge loss" - Shanghai trader.
  • Another trader agreed, predicting demand will weaken in the third quarter due to less stocking needs, which would put further downward pressure on premiums should the arb window remain closed.
  • The Philippines government has announced a series of mine closures during the past month but traders have been downplaying the short-term impact.
  • "We think they are trying to plot a bullish story to support the nickel price, which they did to some degree, but it will not be long-lasting" - first trader.
  • In Rotterdam, rates were last at an unchanged $60-80 per tonne for full-plate due to a lack of demand during the holiday season. 


INDIAN ZINC UPCHARGE FALLS AGAIN

  • Zinc premiums fell again in India where domestic production is normalising - spot rates on special high grade ingots were quoted at $110-130 per tonne CIF India duty unpaid (DUP), down from $120-140 last week.
  • Production issues stemming from the transition to to underground mining at Hindustan Zinc's Rampura Agucha from open-pit mining had boosted premiums but the Indian market is now steadier.
  • Physical zinc buying has been deterred by high prices - the LME three-month price hit a 13-month high of $2,295 per tonne on Thursday
  • "Most customers are really living hand to mouth - they only buy when they really need metal" - seller in Europe.
  • Premiums for zinc in Europe remain stable at $130-140 per tonne basis duty-paid FCA Rotterdam; they have not moved since early May.
  • German galvanising demand for zinc increased during the first half, sources said.
  • "The market was a little bit more active but not in the size that could mean it has a direct effect on premiums" - consumer source.


LEAD UNCHANGED IN QUIET MARKET CONDITIONS

  • Lead premiums were stable - the market moved deeper into a summer lull this week.
  • "I should be on holiday now - nothing is happening" - trader.
  • Despite prices falling consistently, Indian secondary production remains the swing factor.
  • "When the LME price is above $1,800 per tonne, secondary suppliers rush to supply the market" - market seller.
  • Spot lead premiums remain steady at $50-70 per tonne CIF India for 99.97-percent secondary ingots.
  • The market is looking towards later in the year when primary lead smelting production could be at risk due to falling treatment charges - particularly in China, which relies on primary production more than any other major consumer.
  • "Recently, the Chinese market seems slightly short because the government is checking secondary lead smelters for environmental issues but so far I haven't seen anyone import" - second trader.


TIN RATES STEADY

  • Spot premiums for tin were stable this week while demand is slow for the summer holidays and consumers sit on the sidelines of the market due to high prices.
  • Premiums for 99.9-percent-purity tin in Singapore were last at $50-80 per tonne, with low-lead metal at $210-260.
  • "It's hard for premiums to go up if you have a lot of stocks in Southeast Asia. People are trying to sell but there are not many buyers" - tin trader in Asia.
  • In Rotterdam, rates for 99.9-percent-purity tin in Rotterdam warehouses remain at $350-400 per tonne over LME cash prices.


(Editing by Mark Shaw)



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