Winter Park, Florida 31/08/2016 - The market for copper cathode in the US has deteriorated over the past several weeks - soft demand and better scrap availability have led to an uptick in warehouse stocks and lower premiums.
The US Midwest copper premium this week slid to a five-month low of 5.25-5.75 cents per pound from 5.5-6.0 cents previously.
"People are well covered for the summer - no one will be picking up spot [cathode] units until October," a US trader told FastMarkets.
For the first four months of the year, spot copper premiums were steady in an unspectacular range of 5.0-5.75 cents - the region was well supplied by affordably priced annual contracts for South American metal.
But in the second week of April, a sudden and unexpected period of scrap tightness forced several large rod producers and brass mills to buy primary metal instead of scrap. This pushed cathode premiums above six cents, where they stayed for May, June and July.
Comex copper rallied from $2.05 per pound on June 13 to over $2.28 on July 12, however. This 11-percent bump in underlying prices incentivised the delivery of scrap into the supply chain and cathode premiums have been falling ever since.
LOOKING AHEAD
Now the summer is nearing its end and the market is facing lower premiums and a falling Comex price, which this morning touched a two-and-a-half month low of $2.0680 per pound. But even with cheaper prices, few consumers are jumping back into the spot market.
"We hear that the order books for [US tube producers] aren't quite as strong as they were two months ago. So even if scrap gets tight again, there might not be the same rush to replace [with primary]," a US-based trader said.
Rising warehouse stocks are also weighing on sentiment. The bigger problem is in Asia where more than 60,000 tonnes of Chinese material has arrived at LME-bonded sheds in South Korea and Singapore over the past week.
But warehouse inventories are also starting to creep up in the US. Comex warehouse stocks now stand at a 2016 high of 66,948 tonnes, up nine percent since the start of July. LME copper in the US is at 44,475 tonnes, a 21-percent increase over the past two months.
"Metal is appearing in warehouses all over the world - it's very clear the market is in surplus," a third US copper trader told FastMarkets.
Still, several participants suggested that the low Comex prices might force some brokers to withhold scrap from the market. That could lead to another bout of tightness in September and October and lend support to premiums, they argue.
(Editing by Mark Shaw)