By Yoke Wong, Nina Lu and Perrine Faye, FastMarkets
London 06/08/2013 - Metal premiums turned mixed this week in much quieter trading conditions due to the usual summer slowdown, with activity not expected to pick up before the end of this month.
"It's the summer so it's gone much quieter and liquidity has dropped significantly, especially in Europe and the US," a physical trader said.
In addition to the summer holidays and the numerous plant shutdowns in August, markets in Muslim-dominated regions such as Malaysia, Indonesia and the Middle East were closed for Eid to celebrate the end of Ramadan.
The slight recovery in prices gave little incentive to buyers - copper was back around $7,000 per tonne, up from $6,721 at this time last week. Others were more stable, with aluminium holding below $1,800, although zinc climbed back above $1,850 and nickel gained $300 to $13,775.
The LME warrant business was "ultra-quiet", one broker pointed out, while another joked that his pillow needed fluffing up.
In physical metal, trading also slowed down but copper premiums in China rebounded to around $200 per tonne on tight supplies and shipment delays.
Tin premiums also ticked higher in some regions amid worries that supply from Indonesia may drop following the introduction of new export regulations, while nickel, lead and zinc premiums held stable.
Aluminium bucked the trend, registering a sharp decline in premiums, especially in Europe where rates dropped to their lowest in more than a year. The decline was attributed partly to low seasonal demand and partly to speculation that the proposed reforms to LME warehousing regulations will lead to lower premiums in future.
The warehousing issue continued to make headlines in both specialised and general news publications, with pressure mounting from politicians, regulators and consumers to review the LME delivery system.
In the latest development, the LME and warehouse owner Goldman Sachs have been named as defendants in a US lawsuit accusing them of restricting aluminium supply from warehouses in Detroit and inflating the price of aluminium. Both have said they intend contest it vigorously.
The case follows last week's offer by Goldman Sachs to appease aluminium consumers by offering to swap their metal caught in the Detroit queue with promptly available tonnage.
COPPER PREMIUMS REACH RECORD IN CHINA, FIRMER IN EUROPE AND US
Copper premiums in China reached their highest since FastMarkets started to record rates in September 2009 on continuing tight supply, although trading is sparse.
In Shanghai, spot premiums on a cost, insurance and freight (CIF) basis climbed to $180-210 per tonne from $170-200 previously, with SX-EW material trading in a range of $180-190 and electro-refined brands at $190-210. Premiums in China on a CIF basis have been rising since the beginning of this year - rates were quoted as low as $30-60 on January 24.
"The market tightness won't ease until early September when delayed shipments from July and August arrive in China," a Shanghai-based trader said, predicting that they will tick even higher from here.
"Demand is not decent - many factories have paused production for maintenance in the summer, although traders are trying to offer higher premiums week by week," an end-user in China said.
Stocks in bonded warehouses have reportedly fallen to around 400,000-450,000 tonnes over the past month.
In Europe, premiums held static in the traditional summer lull amid. Premiums in Italy were last quoted at $135-145 on a CIF basis and warrants were at $130-140, unchanged from last week.
"Plants have shut for an annual break in Italy - the market in Europe is extremely quiet and nearly dead," a European trader said.
But premiums for warrants in Rotterdam increased to $140-160 from $120-140 previously, with a scrap shortage causing supply to tighten.
"If copper gets to $7,200-7,300, you will see scrap traders getting rid of their stocks, which they have been sitting on for two or three months," a warrant trader said, predicting that this would lower demand for cathode.
"Traders will get a little bit pushy - there's lots of copper in Vlissingen," he added.
After Vlissingen was relisted as a delivery point for copper by the LME copper committee at the end of last month, a large volume of copper warrants have emerged in to the Dutch city.
In the US, the copper premium is locked in a holding pattern while demand is flat and near-by stocks remain fairly tight. Still, warrants were last quoted at $0-30, wider than $0-20 one week ago.
ALUMINIUM PREMIUMS SLUMP IN EUROPE, US
Aluminium premiums succumbed to more severe downward pressure this week, with rates dropping to their lowest in more than a year in Rotterdam, albeit amid much thinner volumes.
"It's largely a psychological move in reaction to the LME proposals on warehousing and expectations that premiums may fall," a trading source said. "I think [the downtrend] will continue for another month to six weeks before consumers return to the market to book volumes for the fourth quarter."
In Rotterdam, where business is more subdued due to the holiday season, duty-paid premiums were last quoted in a wider range of $250-270 per tonne in-warehouse, down from $265-275 last week. They are down 13 percent since their historic peak of $290-305 in January this year and back to the levels they last traded at in July 2012.
Premiums for duty-unpaid material dropped to $190-210 per tonne in-warehouse from last week's $200-220, also their weakest since July 2012 and down 13 percent on the record level of $225-235 hit in February.
"The numbers are all over the place due to the lack of volumes and visibility on premiums - but it's fair to say that they are down sharply," another trader said.
In Italy, premiums dropped to $305-315 duty-paid free carrier (FCA) from $310-320 previously, with only small transactions reported due to the annual shutdown of plants in the country.
The US Midwest premium also fell, slipping to 11.4-11.8 cents per pound - their lowest in two months - from 11.6-11.9 cents last week
"There's no volume at the moment and most people buy on a floating [premium] basis [rather than fixed rates] so it's harder to assess the market. But for sure premiums have eased back from historic levels," a source in the US said.
Premiums held better in Asia, with the exception of a small $5 decline in South Korea to $225-235 per tonne CIF. Premiums in Japan, China and Malaysia held more or less unchanged ahead of the start of the latest round of quarterly talks for Japanese contracts on August 26.
Warrant premiums also held steady at $180-195 per tonne in-warehouse across the Far East, with stock holders seeing no reason to liquidate stocks given the recent widening of aluminium spreads - Dec13/Dec14 was now back at nearly $100 contango, the same level it traded at in June before the LME made its proposals to cut queues.
TIN PREMIUMS STABILISING, OTHERS UNCHANGED
Tin premiums have stabilised on talk of possible delays to shipments from Indonesia while the country closes for the Eid festival.
Spot premiums in Singapore for 99.85-percent brands were unchanged from last week at $40-60 while 99.9-percent high-lead material stabilised at $120-180 per tonne, an improvement from $80-120 previously.
"There are worries that PT Timah may declare force majeure but the notice may not come out until after Eid," one trader claimed.
"If there is a force mejeure, the tin price is going to go through the roof," a second trader suggested.
Output at PT Timah, one of the biggest tin producers in Indonesia, has been falling - it dropped to 30,000 tonnes in 2012, down 21 percent on the previous year.
In response to the news, warrants for 99.85-percent purity tin in Malaysia traded actively in the range of $20-30 while buyers stocked up.
Furthermore, there are talks of the Indonesian government restricting tin exports to a select group of buyers but discussions on this topic will resume only after the holiday on August 12.
"The inner group thing hasn't kicked in yet," a third trader said. "I am bullish premiums: the market is in deficit and will be in an even bigger deficit next year. In August, there is typically a fall in production due to Ramadan/Eid. Stocks have declined but I'm not sure where they are going as the demand is stable at best," he added.
Meanwhile, market participants are increasingly wary of the tightening cash/August spread, which was last at $18, while August/September is $11 back.
Tin premiums elsewhere were unchanged.
In other metals, zinc premiums continued to hold firm in Asia but business was scant in Europe where plants have shut for the August vacation.
"In Asia [premiums] have been keeping high; in Europe, nothing is being traded," a physical trader said.
"Zinc continues to attract interest in Asia but it's damn hard to get hold of metal," another trader said.
Premiums in other metals are largely unchanged due to a seasonal lack of interest.
(Additional reporting by Tom Jennemann and Sean Barry, editing by Mark Shaw)