London 19/07/2016 - Physical base metal markets shifted well and truly into a summer buying lull this week, with several countries also taking national holidays and trading days cut short.
Trading activity has also taken a hit in light of higher LME prices for base metals, which have surged over July.
Zinc, lead, tin and nickel are all trading at or close to May 2015 highs while aluminium and copper are at their highest since late April/early May. In a low-premium environment, this is limiting sales.
"Nobody wants to sell at the current premium levels and it will take some time to make deals. If the [China import] arb keeps negative and price rallies continue, we will see more downtrend pressure on premiums," a trader in Asia said.
NICKEL PREMIUMS FALL ON NEGATIVE ARB, EYES ON PHILLIPINES
- Buying interest for nickel softened in Asia and Europe on a negative LME-SHFE arbitrage, with current LME prices still above $10,500 per tonne - they rose sharply amid potential supply-side disruptions in the Philippines.
- At the current LME-SHFE September contract arbitrage, imports incur a loss of about $448 per tonne, according to local trading sources.
- Shanghai full plate premiums dropped to $130-150 per tonne for SHFE-deliverable brands and to $100-130 for non-deliverable material both bonded and on a cost, insurance and freight (CIF) basis, down $30 and $20-30 respectively on last week.
- "The terrible arbitrage has stopped the business and the market is dead" - trader in Shanghai.
- A sharp decline in demand from the stainless steel industry and high stocks in China also curbed appetite for imports, local sources claimed.
- In line with the Chinese market, warrant premiums for full plate in Singapore, Malaysia and South Korea fell to $15-55 in-warehouse due to a slump in arbitrage-driven demand.
- SHFE-deliverable brands are widely believed to be tightly held by several trading houses in the region; they are in no rush to sell and are waiting for a better arbitrage in the future.
- "Nobody wants to sell at the current level… the trading volume is very small" - second trader in Asia.
- The European market is also under pressure from the unattractive LME-SHFE arbitrage, with premiums falling to $60-80 per tonne in-warehouse Rotterdam for full plate.
ZINC PREMIUMS DOWN IN INDIA, STABLE ELSEWHERE
- Premiums for special high-grade zinc ingots have dwindled in Asia while rates were steady elsewhere.
- In India, rates on duty-free material have fallen to $170-190 per tonne CIF from $175-195 last week while they edged down to $120-140 per tonne for duty-unpaid metal, mainly due to reduced demand during the monsoon season and generally abundant local supply.
- "It's a seasonal thing… premiums have calmed down. Monsoon season is usually around June to August when we will see slight downward pressure on premiums" - producer source.
- In China, premiums were unchanged due to the unfavourable arbitrage between Shanghai and London.
- "There is no trade in the market as LME zinc prices climbed quicker than those on the SHFE. People are only fulfilling their long-term contract commitments" - trading source.
- In Europe, rates were unchanged at around $130-140 per tonne FCA duty-paid.
- "There will be some downside pressure on the premiums if prices keep at current high levels" - European trader.
- The picture is still mixed for producers in Europe, some of which have sold out until the end of the year while other still have extra spot tonnages to offer, a second market source added.
COPPER PREMIUMS IN SHANGHAI STATIC, NEGATIVE ARB AND WEAKER YUAN CAP INTEREST
- Shanghai copper premiums were stable for a fifth straight week at a low $45-55 per tonne CIF and in-bonded warehouse over LME cash prices, with the traditionally slower summer period now in full swing.
- A negative arbitrage ratio - worsened only by the rise in the LME price last week and a continual fall in the yuan against the dollar - has curbed interest in importing metal.
- "The worst period for demand is at the moment. There is very good availability for nearby cargoes but also August cargoes are being offered at the same rates" - Japanese trader.
- The wider contango in the LME cash/three-months spread has held throughout the week - primarily due to a run of deliveries into LME-listed warehouses in southeast Asia although a net 25,675 tonnes were removed from sheds in Taiwan, Malaysia, Korea and Singapore this week.
- Smaller deliveries are likely to continue, however, while the bonded premium remains low and while traders with long-term contracts with producers both in Asia and in South America continue to redirect material direct to sheds, sources said.
- In Europe, interest prior to the seasonal maintenance period has also died down. Rotterdam was last quoted at $50-55 CIF while Italy was last at $55-65 CIF due to temporary tightness caused by some delayed shipments from Chile.
- "It's very, very quiet now but the last two weeks were actually quite busy as people were taking delivery of metal before they shut down for the summer. But now we're in summertime so it's all very quiet" - European trader.
- The US Midwest delivered copper premium was stable this week at 5.75-6.25 cents per pound, with spot activity quiet and markets stuck in the summer doldrums.
- "That range has worked well for quite some time" - a US trader said.
- Still, a second US trader noted slight downward pressure on the premium and said that scrap has not eased by much.
ALI PREMIUMS STABLE; Q3 MJP FALLS 21 PCT
- Aluminium ingot premiums were stable again this week while the market moves deeper into the summer buying lull.
- Three-month LME aluminium turned lower this week, breaking below $1,650 per tonne, but it remains high relative to the range of $1,400-1,500 seen for most of the year so far.
- "Almost all consumers are waiting for the price to drop" - trader in Asia.
- All negotiations have ended for Japan's third-quarter aluminium ingot supply contracts, which were unchanged from initially reported levels of $90-93 per tonne.
- Most major consumers booked at $90, sources said, with smaller companies at the higher end. The benchmark is down 21 percent from the $115-117 agreed in the second quarter of 2016.
- Despite the significant drop in quarterly premiums, they remain above quoted spot market figures for physical aluminium, which are now at $80-90 per tonne CIF Japan.
- "The spot market is below that [benchmark] already - no-one is buying at $90" - trader in Japan.
- After consulting widely in the market, FastMarkets is moving down aluminium warrant premiums for material in-warehouse Singapore and Malaysia. Premiums for warrants in both locations are being traded at $10-25 per tonne, market participants report.
- 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.
- "The pressure is off a little bit with the spreads having moved out so people can say they want more for their metal. On the other hand I don't think there's any business around" - trader in Europe.
- On the LME, the cash/3month forward spread is at $16 per tonne contango, up $2 from last week, making it easier to hold aluminium in the near term.
- The US Midwest aluminium premium remains depressed at a five-year low of 6.9-7.25 cents per pound, with a steady stream of imports continuing to weigh on the market.
- "We aren't seeing any spot business on the billet side and the ingots" - US producer.
- "There is nothing to push the market one way or another right now. Europe is shut down for August and Asia seems kind of well-supplied" - US trader.
LEAD RATES STABLE AMID THIN TRADING ACTIVITY
- Lead premiums in India were unchanged this week amid reduced interest during the monsoon season. Buyers have been sitting on the sidelines while trades have been few and far between.
- Premiums for lead in India on a CIF basis were last at $50-70 per tonne for 99.97-percent-purity metal and at $120-140 for 99.99-percent.
- "Everything is very quiet now and it's also the monsoon season. It's absolutely a dead market now; that's genuinely the case during July-August" - trader source.
TIN STEADY AMID SCANT BUYING INTEREST
- Tin premiums are stable amid slow summer demand, rising LME prices and while the market keeps a tight eye on Indonesian exports.
- Premiums for 99.9-percent-purity tin in Rotterdam warehouses remain at $350-400 per tonne over LME cash prices.
- "The European market started to calm down in July and it will be quieter in August due to the summer holiday" - trader in Europe.
- Premiums were also steady in Asia, with Singapore rates at $210-260 for low-lead material.
- Some traders believe the availability of RBT brands has pressured premiums lower in Singapore but a pick-up is expected in September or October when all the RBT material will have been consumed by the market.
- Attention was still on Indonesia, with some market players asking questions about future outflow from the country.
(Editing by Mark Shaw)