Chicago 06/10/2016 - The US midwest delivered copper premium slipped to 5.0-5.25 cents per pound over the last week, which was partially attributed to the physical arbitrage window between Comex and LME, market participants said.
The premium is now at the lowest mark since FastMarkets' began tracking the regional unit in April 2010 and the window has been fluctuating between open and closed over the past week.
An arbitrage opportunity appeared late last week when Comex copper traded above the LME price, allowing traders to buy LME copper and sell Comex metal.
"We have cathode to sell but no one is paying even 5.5 cents. At that rate, we're better off just putting it into warehouse and waiting it out," a US trader told FastMarkets.
But the opportunity was short-lived with copper prices tumbling in a broad-based selloff earlier this week, fueled by a multi-month high dollar. Since hitting a two-week high last week, Comex copper for December settlement has tumbled to $2.1560 per pound.
Premiums have been suppressed throughout the summer due to a quiet spot market and general uncertainty heading into the traditional mating season, which is expected to begin in earnest around the start of London Metal Exchange (LME) Week.
The macroeconomic picture is also a concern with the International Copper Study Group (ICSG) reporting that the Americas have experienced a four percent decline in usage through the first half of 2016 compared to the same period a year earlier.
Additionally, outside of a few minor mine closures the supply-side is little changed from 2015 and concerns about Chinese demand are expected to keep prices stabile through 2017.
Chile – the world's largest producer of copper – has only seen production drop five percent year-over-year despite low prices and a host of natural disasters that have led to mine disruptions.
But the big story is the Peruvian expansion into the copper arena, with the country producing fifty percent more copper in 2016 compared to the previous year.
Still, some market participants were sceptical that premiums could stay at five cents, citing the difficulty in covering logistical costs of transporting the material from one location to another.
"Haven't seen as anything as low as that [5 cents], it would be very risky...that would quite the gamble to book at those levels. You are really pushing the level of what is feasible logistically," another trader said.
(Editing by Tom Jennemann)