London 03/01/2017 - Base metal physical markets ended one year and kicked off the next in a cautiously optimistic manner.
There was renewed buying interest in aluminium and nickel at higher levels in Asia, as there was in zinc and lead after prices came off multi-year highs set in November.
Copper rates fell in the US and in Shanghai - in the latter, to their lowest since 2011 - reflecting a lack of demand, which may be the case for a few weeks yet.
While long-term contract negotiations are still in progress for some parties, others have secured their main lines of supply for the year, premiums for which are for the most part slightly lower than those set for 2016.
Market participants remain bullish about consumption rates of base metals in 2017, especially in main consumer China, after recent data showed the country’s manufacturing sector was in good shape towards the end of 2016.
But with China preparing for its New Year holidays early this calendar year on January 28 and markets in Europe and the Americas still building up pace after slowing for Christmas, a return to large-scale trading activity may have to wait.
“Most plants are still coming back now - we will see what 2017 holds in a few week’s time,” a trader in Europe said.
Copper premiums ease in China on lack of interest; US rates at 5-year low
- US copper premiums dropped to their lowest in more than five years close to 5 cents per pound this week on a lack of buying interest. Shanghai rates also fell, with little demand in sight until after Chinese New Year.
- The US Midwest delivered premium inched down to 5.00-5.20 cents per pound; market participants warned that there is downward pressure after a slow December.
- "There isn't a lot of activity yet, people are waiting to see what happens" - US supplier.
- After consumers destocked at the end of the year, the focus now turns to when restocking will begin and if premium levels might tick higher because of increased demand.
- "December was dead slow. Typically, January you do see a little flurry of activity as people do some restocking" – US trader.
- In China, buying interest is very low. Buyers are happy to live on long-term contracts until the Chinese New Year ends in early February, especially with the LME-SHFE arbitrage window remaining shut.
- “I think January will be a write-off - nothing much will happen until the middle of next month” – European trader.
- Shanghai premiums dropped by $5 to $55-65 per tonne on a cost, insurance and freight (CIF) and an in-bonded warehouse basis, with further downside possible due to a pre-holiday slowdown and the difficulty of securing letters of credit (LCs).
- “Opening LCs is more difficult now - copper as a financial product is under scrutiny in China. So imports will stay low and I see a lot more copper going to the LME” – second European trader.
- In Rotterdam, premiums were static around the $40 CIF mark, with plants slowly reopening after the Christmas break.
Aluminium premiums rise in Asia, USA at start of 2017
- Aluminium premiums again rose in Asia - news of the 27% increase to the first-quarter major Japanese ports (MJP) settlement has lifted prices across the region.
- Spot MJP premiums in Japan rose to $90-95 per tonne CIF from $80-90 previously after global aluminium producers and buyers in Japan agreed to first-quarter 2017 CIF MJP premiums at $95 per tonne, up from the fourth-quarter premium of $75.
- Nine deals totalling at least 30,000 tonnes of aluminium supply for the first quarter were reported to Metal Bulletin between December 22 and December 28. Assessment for the first-quarter aluminium premium is based on input from eight market participants directly involved in the talks.
- Japan was closed today for a bank holiday.
- Outside of Japan, improved sentiment was reflected in nearby markets where units were comparatively tighter.
- “The market supply right in Korea now is a little bit tight as some traders and sellers wanted to see how the market develops in the New Year and are not eager to make offers to the market yet” – trader in Singapore.
- CIF cargoes in Korea, Malaysia and Singapore consequently rose to $90-$100 per tonne from $80-90 previously.
- The US Midwest premium also moved higher this week to 8.25-8.6 per pound from 8.0-8.5 cents. Some consumers are already looking around for material even though it’s the first business day of the year.
- “It’s too early to say exactly how January is going to play out but indications are that premiums are well supported at this level. We’re not seeing many, if any discounts, and demand is looking pretty good” – US trader.
- There could be significant restocking at an industry conference later this month, he suggested.
- In Europe, however, activity remained slow following the festive break – tight spreads and a small number of spot buyers on the market have kept premiums stable.
- The persistence of a backwardation in the forward curve is keeping much of the trade on the sidelines – over the festive period, some deliveries against the backwardation were recorded but 42,725 tonnes were also cancelled in the port of Busan, lessening the impact of the deliveries.
- The benchmark cash-3s is in a backwardation of $11 per tonne, cash/Jan at $8.25, cash/Feb $16.75 and cash/March $14.
- Duty-unpaid premiums were unchanged at $67-75 per tonne in-warehouse while the duty-paid rate held at $120-128.
Zinc stuck sideways; market eyes Chinese smelter cuts
- Zinc premiums were unchanged at the start of the year – the European market has been slow to return from the Christmas holidays and buying was sporadic over the festive period.
- Some sellers reported a burst of activity when outright prices came off during the past two weeks; the LME three-month zinc contract has continued to soften throughout December and ended 2016 at $2,576 per tonne, down from peaks above $2,800 earlier that month.
- But physical spot buying has largely been subdued, with many galvanisers only returning on Monday January 2 and some still conducting maintenance works.
- “Most of the plants are still in maintenance for the first week of this year and I think we'll have some more of indications of business in next year over the next few weeks” – trader in Europe.
- Spot premiums for special high grade (SHG) zinc ingots were stable at $130-145 per tonne duty paid FCA in Rotterdam.
- In Asia the market is quiet for other reasons - as well as the approaching Chinese New Year, market participants are waiting to see whether a tighter zinc concentrate market in China will lead to significant production cuts and whether the import arbitrage might improve.
- China's Chihong Zinc this week shut two smelters with total smelting capacity of 40,000 tonnes per year of zinc, while also moving to upgrade another smelter.
- “If something happens on the smelting side then premiums would increase in the second half of the year, but right now there is material available” – second zinc trader.
- Premiums for SHG zinc ingots in Singapore are at $115-135 per tonne in-warehouse, unchanged from last week.
Open arbitrage lifts Shanghai nickel higher still; ex-China also higher
- Spot premiums for full-plate nickel cathodes in Shanghai firmed again this week - an open LME-SHFE arbitrage window enabled imports into China at small profits.
- Full-plate cathode premiums for SHFE-deliverable metal rose to $130-150 per tonne from $100-130. Traders were reportedly keen to do business before the Chinese New Year festival, which takes place over January 27-February 3.
- Outside of China, warrant premiums for deliverable full-plate material also climbed. Traders pegged nickel warrant premiums at $20-50 per tonne, up from $20-30 previously in Singapore, Malaysia and South Korea. Briquettes were unchanged at $0-10 across the region.
- In Europe, the market has yet to reawaken from the festive period – the focus of the previous weeks was predominantly on long-term business, for which annual premiums settled around $100 per tonne for both briquettes and full-plate cathodes.
- Spot premiums for nickel briquettes in Europe remained at $80-100 per tonne and full plate premiums at $55-75.
Lead rates unchanged; annual talks still in play
- Physical lead buyers and sellers have started the year on a firm footing, with annual contracts still being negotiated by some parties in a well-supplied market.
- Premiums for the annual supply of 99.97% purity lead ingots in Asia have been concluded in a wide range of $50-90 per tonne in East and Southeast Asia, depending on origin.
- “It depends on the supply source” – consumer in Asia.
- The continued influx of Iranian secondary lead has meant that premiums in annual contracts for the supply of 99.97% lead ingot have fallen, several sources said.
- “It’s good quality material, it’s cheap and it’s available so that has changed the market a lot in the past year. Far East premiums are coming down” – lead trader.
- In India, which a major importer of lead, premiums remain unchanged at $35-55 per tonne for 99.97% lead. The domestic market has been extremely quiet since the government banned the use of 500- and 1,000-rupee notes.
Tin premiums stabilise as distressed selling stops
- Tin premiums stabilised this week - the downside pressure eased after the New Year put an end to distressed selling by cash-thirsty stockholders.
- But premiums remain weak due to soft demand and a persistent backwardation in LME spreads. The cash/threes spread was last at $120 per tonne, having dropped to $85 earlier. But the cash-January rate was less tight at just $5 per tonne and the Jan-Feb rate was at $30, making it easier for traders to get involved again.
- “A lot of producers wanted rapid cash before the end of the year so that led to lower premiums. Now that’s gone we are back to more normal levels” – European trader.
- Premiums for 99.9%-purity metal in Rotterdam rebounded by $20 to $300-350 per tonne in-warehouse, with offers as high as $390 for LME-registered material. In Singapore, premiums for the same purity rose to $50-125 per tonne in-warehouse from $0-75 before Christmas, with non-LME registered material still quoted at the bottom of the range and below.
- The backwardation has failed to attract significant deliveries of metal into LME-bonded warehouses, with available stocks currently below 3,000 tonnes, almost all of which sit in Singapore and Port Klang.
- Producers remain spot sellers at current high prices of around $21,000 per tonne, although Indonesian smelters are in the process of renewing their export permits for the coming year. Traders are still unwilling to finance stocks due to the backwardation and consumers are discouraged by the high price.
(Editing by Mark Shaw)