PHYSICALS WEEKLY - US copper premium hits record lows, ali on the mend

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London 04/10/2016 - The past week has been very subdued for physical markets while Chinese market participants are absent for the Chinese Golden Week holiday. Most of the action has been centred on the US where copper and nickel premiums fell to new lows.

The US Midwest delivered upcharge is now at its lowest on FastMarkets' records while nickel has fallen to its lowest in two months.

In contrast, the aluminium premium in the US Midwest ticked higher, moving off its recent lows of around 6.0 cents per pound.

With markets across the complex now gearing up for annual negotiations in the coming weeks, spot activity will be crucial for setting the agenda in many as the annual LME Week series of events approaches.

"Prices of commodities have gone yo-yo and consumers don't like that very much," one trader said, speaking ahead of the start of negotiations.

But for now spot activity is thin across large swathes of Asia - market participants are not due back at their desks until Monday next week.

"It's been a torrid couple of months… [due to] various national holidays including one this week, the back end of the summer and everything else, it's been really quite tedious," a warrant trader in London said.


US ALI PREMIUM RALLY CONTINUES, ASIA EUROPE UNCHANGED

  • US aluminium premiums rose for the second consecutive week, climbing to 6.25-6.75 cents per pound from 5.75-6.25 cents, with demand improving after months of weak trading.
  • "We're certainly seeing higher numbers for [P1020] - the discounts are gone for sure and the market is tighter" - US supplier.
  • Import levels are likely to remain steady at current levels next year but car sales should keep premiums in the prevailing range although they might tick upwards to 7.0 cents, market participants said.
  • Meanwhile, the future of Noranda's 263,000-tonne-per-year New Madrid smelter looks to be secured after Swiss trader ARG International won an auction for the asset.
  • Premiums for P1020 aluminium ingots were unchanged in Europe and Asia this week - warranted stocks jumped in South Korea, with much of the European trade attending the Metal Bulletin conference in Madrid.
  • Warranted LME aluminium climbed 12 percent this week in South Korea due to 34,475 tonnes moving into LME-listed sheds there.
  • Aluminium premiums in South Korea remain among the lowest in the global market at $55-65 per tonne on a cost, insurance and freight (CIF) basis compared with $65-70 per tonne CIF to nearby Japan.
  • "Korea is the easiest place to dump ali at the moment because they consume the most cans in Asia and incentives are probably one of the better ones" - trader in Asia.
  • Weakness in the Asian physical aluminium market is fuelling concerns that extra material may be shipped to Europe, where relatively stronger demand has buoyed premiums over the past three weeks.
  • Premiums for duty-unpaid material remain at $70-80 per tonne in-warehouse Rotterdam. Although some higher trades were reported, physically settled business was pegged below $80.
  • "People would probably try to offer [above $80]. It's probably not going to be smooth to sell at those levels still" - trader in Europe.
  • In Italy, premiums remain at $155-170 per tonne on a duty-paid free carrier agreement (FCA) basis while Turkey is stable at $80-100 per tonne DUP FCA.
  • "The domestic market is going quite well. We had a record month for exports so far this year in September" - consumer in Turkey.


COPPER SLIPS IN US ON IMPROVED SCRAP AVAILABILITY; OTHERS UNCHANGED

  • The US Midwest delivered copper premium slipped to 5.0-5.25 cents per pound - the lowest since FastMarkets' records began in April 2010 - from 5.0-5.5 cents amid stagnant demand and ample scrap availability.
  • "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" - US copper trader.
  • Comex copper is also now trading above the LME price so some in the trade have been buying LME and selling Comex metal. This has put further downward pressure on premiums - hence the proliferation of five-cent offers this week.
  • In Asia, spot premiums for copper were unchanged this week in light of the Chinese Golden Week holidays. Premiums in Shanghai in-warehouse were last at $55-65 per tonne for bonded cargos and $50-60 CIF.
  • In Europe, rates held steady at $45-50 CIF in Rotterdam while CIF premiums in Italy were unchanged at $55-65 amid limited buying activity.


US NICKEL UPCHARGE DROPS TO 2-MTH LOW, EYES ON SHERRITT

  • Nickel spot premiums dropped in the US on a lack of demand and high inventory while rates elsewhere were largely stable in quiet trading conditions due to the Chinese holiday.
  • Commodity melting-grade nickel spot premiums for truckload volumes in the US dropped to 16-20 cents per pound over the LME from 18-22 cents previously, their lowest for two months.
  • "Whatever the deficit we had this year, we need an even bigger deficit - there is a lot of every shape in the market" - US trader.
  • Eyes also turned to Cuba this week after the temporary shutdown of two nickel processing plants owned by Cubaniquel and Sherritt ahead of the passage of Hurricane Matthew, according to local reports.
  • Cuba is one of the world's largest nickel producers and also supplies about 10 percent of the world's cobalt, according to the Mining and Energy Ministry.
  • The high nickel price - it is holding above $10,000 per tonne on the LME, basis three months - is deterring buying while encouraging scrap to make its way onto the spot market, especially in Europe.
  • In Rotterdam, briquette premiums held at $60-80 per tonne in-warehouse. Relatively tight regional supply was offset by increased scrap availability and low demand. Full-plate cathode premiums edged up to $70-80 in-warehouse from $60-80 - the recent shift of supply to China tightened European availability.
  • "Nickel is all about China and there's no interest. If prices come down again and the arb reopens - it's been closed for three months or so - then we could see demand picking up again" - trader in London.


ZINC PREMIUMS STEADY, ANNUAL TALK IN EUROPE CONTINUES

  • Spot rates for zinc this week were steady - consumers stayed on the sidelines due to higher LME zinc prices.
  • In Europe, premiums largely held steady. Spot rates in Rotterdam were last at $125-140 per tonne duty-paid FCA.
  • "It's very stable market and we are trying to get higher premiums on our side" - trader in Europe.
  • Consumers have little appetite for trading on the spot market due to higher LME zinc prices. Three-month metal was last above $2,400 per tonne, up almost $100 in one week.
  • "Prices are now at its higher end and an increase to $2,500 is also possible. This would erase all the spot purchases" - trader.
  • Annual negotiations have already started, with initial offers around $5-10 higher than the 2015 benchmark at $125-145 duty-paid FCA in Rotterdam.
  • "Producers still want a slightly higher number and they have been claiming that the shortage would be wider for next year. But we still don't see it" - buyer in Europe.
  • In Shanghai, rates were again unchanged at $95-110 CIF Shanghai due to the closure of the Chinese market.


LEAD UNCHANGED, REWARRATING EASES SPREADS

  • Spot rates for lead were unchanged this week due to LME prices of more than $2,000 per tonne.
  • In South Korea, premiums for 99.97-percent lead were unchanged at $80-90 CIF while rates in India held at $55-75 - buying appetite is tepid.
  • Spot rates in Rotterdam for 99.97-percent-purity lead were last at $55-65 per tonne duty-paid FCA while premiums in Italy were unchanged at $140-150 delivered duty-paid.
  • On the spreads, cash-threes was last at $8 contango, up from $6.25 last Tuesday, due to a significant rewarranting of 19,200 tonnes in Europe that lifted total on-warrant metal to 144,250 tonnes.


TIN RATES FLAT, NEW ICDX RULES IN FOCUS

  • Tin premiums were unchanged this week - high prices continue to deter buying while concerns about the impact of the Hanjin bankruptcy eased on reports that few containers are affected.
  • Premiums for 99.9-percent-purity metal held at $75-125 per tonne in Singapore and $360-400 in Rotterdam on an in-warehouse basis.
  • The market has been digesting new rules by the Indonesia Commodity & Derivative Exchange (ICDX) that require full cash payment for Indonesian tin purchases instead of a royalty and direct transaction with ICDX rather than the use of an agent, Asian traders explained.


(Editing by Mark Shaw)



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