PHYSICALS WEEKLY - US ali off bottom, zinc pressured as mating season starts

London 20/09/2016 - Physical base metal markets remained largely sluggish this week despite a pick-up in spot activity and a rise in aluminium.

While aluminium premiums have eked out some gains, there remain concerns about the downside for the entire complex while supply largely outpaces demand.

The court approval of miner-trader Guangxi Non-Ferrous Metals Group's bankruptcy plea this morning served as a reminder of the tough climate for trading in China.

Indeed, after flickering into life a week ago, the import arbitrage window into China has shut again for all base metals barring copper although even here the profits that could be made are negligible at best.

Meanwhile, producers, consumers and traders are all turning their attention to negotiations for next year's annual contracts, with LME Week in London around a month away.

US ALI PREMIUMS UP FOR FIRST TIME IN 6 MTHS, EUROPE STRENGTHENS

• Premiums for P1020 aluminium ingots ticked up in the US and Europe - the LME's cash-three months price spread remained in a solid contango, emboldening holders and sellers of the metal.
• US aluminium premiums have bounced slightly amid moderately better third-quarter demand and reluctance among suppliers to discount metal during the mating season.
• The US Midwest premium climbed to 5.75-6.25 cents from 5.25-5.9 cents, which was a seven-year low.
• "There's still plenty of aluminium out there but [the producers] might be holding it a little more tightly. The spreads are better so they can finance. [Also] they want to give the appearance that premiums are rising [heading into the MB Conference in Madrid]" - US trader.
• On the demand side, the Aluminum Association's Index of Net New Orders of aluminium mill products for August increased ten percent over the previous month, which is a solid recovery from July when orders decreased 9.9 percent.
• CME Group's aluminium MW US Transaction Premium (AUP) contract has also crept higher - the September contract settled at 6.152 cents per pound on Monday, up 2.65 percent week-on-week. Last Tuesday, it fell to an all-time low of 5.993 cents.
• Annual contract talks have started. European and American suppliers are both quoting annual rates above current spot levels, making it highly unlikely that business will be booked until the Madrid conference and the Washington AEC meeting.
• Europe saw small gains in Rotterdam for the second straight week, with premiums widening to $65-80 per tonne duty unpaid from $65-75 last week.
• Forward spreads remain stable - cash-threes was last at $14.5 contango from $16 last week.
• "The contango is not great but it's not bad either. There's no incentive to really lock in a big loss for holders with big off-warrant cargos" - trader in Asia.
• Some producers and consumers have suggested that the physical market could lock in full-year contracts to take advantage of premiums that are currently at low historical levels.
• "It seems that the forward market for next year is more or less producers; nearby is traders asking for $3, $4 or $5 more" - trader in Europe.
• Premiums in Asia were stable at low levels after CIF MJP fourth-quarter contracts were settled at a benchmark of $75 per tonne. This is largely above spot premiums in Japan, which were quoted this week at $60-70.
• Two large clips totalling 9,500 tonnes of aluminium were delivered into South Korean warehouses on Tuesday, lifting the stock base there. Consequently, CIF premiums to Korea at $55-65 per tonne remain lower than the MJP benchmark.

ACTIVITY PICKS UP IN CHINESE SPOT COPPER BUT RATES STEADY

• Copper premiums in Shanghai remain at their highest since April, with traders widely reporting an uptick in activity, particularly following a small opening in the arbitrage window last week. Rates in Europe and US were also steady.
• Spot premiums in Shanghai were quoted at $50-60 per tonne CIF and in bonded warehouses, although sellers are now gradually offering as high as $65 given increased activity around the Chinese holidays. 
• "There's been relatively more business than in the last couple of weeks. I've heard some people have done as high as $65 - but some people will be looking to drive things higher now that we're approaching annual talks" - trader in China.
• The LME-SHFE physical arbitrage window has been fluctuating between open and closed over the past week. At the close on Tuesday, there was a $5 gain to be made from importing into China on the nearby date.
• Premiums in Europe were stable at $45-50 CIF in Rotterdam and $55-65 CIF in Italy - holders of metal are under no pressure to move material onto the market amid healthier spreads.
• The benchmark cash-3s was last in a contango of $23, up from $17 last week.
• The US Midwest delivered copper premium was unchanged at 5.25-5.75 cents per pound - higher Comex prices pushed well-covered consumers to the sidelines.
• "The market is stagnant - we're holding material in warehouse and are willing sellers but not at these premiums. There's just not that many buyers out there" - US trader.
• "Our phone isn't ringing very much. There's still a summer feeling in the copper market. Everything is just ticking along and in a couple weeks we will start looking at next year" - US trader.

ZINC PREMIUMS UNDER PRESSURE AS PRICE REBOUNDS STRONGLY

• Zinc premiums have come under renewed downside pressure following a spike in LME prices while the predicted supply tightness has yet to show up in the refined market.

• LME three-month zinc broke above $2,300 per tonne for the first time in two weeks on Tuesday, keeping the London-Shanghai arbitrage window firmly closed.
• "There are lots of offers but no buying interest. The arbitrage is so bad; today you would lose a lot [by importing]" - trader in Shanghai.
• "With the LME at $2,300, buyers will really hesitate to buy. It's clear there is no deficit yet" - trader in Europe.
• The US Midwest premium held at 6.25-6.75 cents per pound but the high prices deterred spot buying, with 6 cents looking like the next target. 

• The spot market in Shanghai stalled, with no transactions reported this week for special high-grade zinc and the bid/offer spread widening to $70. Indicative premiums were last at $95-110 per tonne CIF and in-bonded warehouse.
• In Europe, rates remained at $125-140 per tonne duty-paid Rotterdam but trading volumes thinned out while premiums in Italy slid slightly to $185-200 delivered from $190-200 previously.

NICKEL UNCHANGED, MARKET AWAITS PHILIPPINES MINING AUDIT

• Nickel spot premiums were stable globally this week amid waning buying interest caused by higher LME prices and the closed LME-SHFE import arbitrage window.
• Premiums for full-plate nickel were last at $70-90 per tonne for non-SHFE-deliverable brands and $80-100 per tonne for SHFE-registered brands, both on an in-warehouse and a CIF basis.
• "The arbitrage has been volatile during the past week. It narrowed before the Chinese Autumn Festival to a loss of 1,000 yuan per tonne and then widened to 2,600 yuan before dropping to around 1,700 yuan" - source in Asia.
• Meanwhile, traders have downplayed the results of the Philippines mining audit - due this week - although concerns linger.
• "It's just a political propaganda - we still see the material coming out from those already closed mines. The short-term impact on prices will only last before the rainy season arrives as afterwards they are unable to ship out materials even if there is no suspension" - second trading source.
• The Philippines government will also balance economic benefits with environmental concerns, meaning any further mining suspensions it ordains would not have a major impact on the long-term fundamentals, other sources suggested.
• In Europe, rates were last at $60-80 per tonne for full-plate nickel, with few trades reported after the recent price rally.
• "Consumers are just sitting on the sidelines when prices break through $10,000 per tonne as it's a bit pricy to buy now" - third European trader.

LEAD PREMIUMS A TOUCH SOFTER IN EUROPE ON AMPLE OFFERS

• Lead premiums eased slightly in Europe on ample availability of both primary and secondary metal, with few spot trades reported. High prices - three-month lead is up 4.7 percent over the past week - have deterred buying everywhere this week.
• Rates for 99.97-percent-purity material eased by $5 to $55-65 per tonne duty-paid FCA in Rotterdam and by $5 to $140-150 delivered duty-paid in Italy.
• "There is a lot of material in Europe right now. In Asia, demand is OK but supply is also good" - trader in Europe.   
• Premiums in Asia held mostly stable, albeit with fewer upside risks after reported closures in South Korea failed to prompt any tightness.
• Rates for 99.97-percent lead in South Korea were a bit softer at $80-90 CIF due to high LME stocks; in India, premiums for metal of the same purity held at $55-75 amid a lack of buying.

TIN RATES UP IN SINGAPORE, OTHERS UNCHANGED

• Tin premiums have risen $25 in Singapore to $75-125 per tonne for 99.9-percent-purity metal from last week while rates for metal with impurities below 100ppm were last at $250-300 per tonne, up from $210-260.
• On the LME, the cash-3 months spread has eased to $4.5 per tonne backwardation from $34 last Tuesday while cash/October and cash/November were at respective contangos of $2 and $4.5.
• News of Guangxi Nonferrous group's bankruptcy has supported prices - given its majority stake in China Tin Group, questions are being asked about its ability to produce if there were a shortage of capital. Output of refined tin in 2015 was around 11,000 tonnes.
• In Rotterdam, premiums remain at $350-400 per tonne for 99.9-percent-purity tin in-warehouse.
• "It's unchanged for now but could it edge up as delays to shipments could tighten supply in the short term" - a European tin trader.

(Editing by Mark Shaw)