London 04/08/2015 - The summer lull typically observed at this time of year has had the expected effect of reducing trading volumes and pushing many prices and premiums lower this week.
This has especially been the case for aluminium, which has seen renewed downward pressure on premiums due to continued oversupply and soft summer demand. Zinc, tin, nickel and lead premiums have remained more or less unchanged, with little spot trading reported.
Copper has been a slightly different case, with firmer premiums in Shanghai pushing Asian rates a touch higher, albeit with very small volumes changing hands.
Still, the rally - confined to spot rates rather than forward quotations - was not related to a pick-up in demand or a tightening in supply but was entirely the result of lower LME prices and improved arbitrage opportunities.
"The market hasn't picked up in China - it's still very quiet," a trader in Singapore said. "The quarter will remain this way because prices are still falling and people are waiting on the sidelines - if prices go down further, probably more people will start to buy and we will see fresh demand."
Copper and aluminium prices have hit new six-year lows on the London Metal Exchange (LME) below $5,200 per tonne and near $1,600 respectively. Zinc has dropped to one-year lows and other metals have inched lower as well amid gloomy sentiment across commodities due to concerns over a slowdown in Chinese economic growth.
Meanwhile, tightness in nearby LME spreads in zinc, copper, lead and tin have also played a part in keeping potential buyers at bay.
The traditionally slower summer season, when many factories shut down and market makers go on holidays, is likely to keep premiums on the defensive in the coming weeks.
SPOT ALUMINIUM PREMIUMS START TO DIP IN US, EUROPE AND KOREA
• The US Midwest aluminium premium slipped for the second straight week to 7.75-8.25 cents per pound on a delivered basis from 8.25-8.75 cents previously. Consumers remain cautious amid concerns over Chinese exports and overproduction.
• "It's slow in the spot market, even more so that last week. People are scared and when that happens the tendency is to sit on the sidelines," a US trader said.
• Similarly, European duty-unpaid premiums also traded lower this week at $105-125 per tonne, down from $115-135, a level they had maintained for the past five weeks. They are under pressure while sluggish summer demand contends with a heavily supplied continental market.
• Duty-unpaid producers are also offering at competitive levels, undercutting premiums for duty-paid material, which are also trending lower to $155-175 per tonne while LME prices continue to slump.
• But low LME prices are also dissuading unhedged scrap merchants from making sales; scrap prices are falling at a slower rate so remelters are choosing to purchase primary ingot instead of their usual scrap supply.
• Quiet summer trading conditions prevail in the Asian market. But premiums for LME aluminium warrants for material in South Korean warehouses have slumped, with sources picking up ingots through clearing and offers heard as low as $50 per tonne.
• "Some bigger houses have been looking at offloading some stocks and were ready to lower premiums so there can be some big price differential of $50 or so for big clips," a UK-based trader said.
COPPER PREMIUMS EDGE UP IN CHINA, US; EUROPE ASLEEP
• Shanghai spot copper premiums rose to $75-90 per tonne on a cost, insurance and freight (CIF) basis or in bonded-warehouse over LME cash prices from $65-80 last week. ER is trading at $80-90 for small volumes and August delivery - premiums for September-October are lower at $70-80.
• "The market has started to simmer but it's not yet boiling," a trader in Europe said.
• The main reason for this is a better arbitrage ratio between LME and SHFE prices after LME prices dropped to six-year lows below $5,200 per tonne.
• Demand is still low - concerns over slowing Chinese growth have picked up - and bonded stocks remain high at 650,000-680,000 tonnes.
• Asia ex-China premiums rose $5 in line with Shanghai but demand is still weak.
• Supply disruptions in Chile were largely ignored due to high stocks globally. Codelco has suspended operations at a second mine - Ministro Hales - due to continued protests by subcontractors over pay and conditions.
• "The focus is on demand and that hasn't been a good story recently. People are ignoring the supply side at the moment," a trader in Europe said.
• The US Midwest premium climbed to 6-6.5 cents per pound from 5.75-6.25 cents. US suppliers have received fresh requests for material over the past few days but not many expect a major surge in premiums given the dour mood in commodities.
• "People held off on purchasing for quite a while so there's some restocking happening now. Copper at $2.32 is fairly attractive [to consumers] so people aren't going to worry about paying extra 0.25 cent on the premium," a US trader said.
• The European market is stable and very quiet due to the summer holidays - factories shut for most of the month. Scrap availability has fallen due to low prices but there is ample supply of grade-A cathodes and non-registered/off-grade material.
ZINC PREMIUMS STABLE IN SHANGHAI, ARB CLOSE TO OPEN
• Premiums for zinc in Shanghai were stable at $80-95 per tonne, with an improved arbitrage window although it is not yet open.
• Stock levels in Shanghai's bonded zone are high, with latest estimates of 140,000-160,000 tonnes at the end of July, up from 130,000-150,000 tonnes in mid-June.
• There were sporadic trades in Europe at stable premiums of $125-140 for duty-paid Rotterdam on an FCA basis.
• "There was not much appetite because of the nearby tightness - TOM/next was at $10 back at some point last week," a trader in Europe said.
• In New Orleans, there were fresh cancellation of 30,000 tonnes today - total stocks there fell to a two-year low of 308,025 tonnes.
• The US Midwest special high grade (SHG) zinc premium is unchanged at 7-7.5 cents per pound.
NICKEL PREMIUMS DOWN IN ASIA, STABLE ELSEWHERE
• Nickel premiums dropped in Asia this week, with sellers offering lower premiums due to reduced buying interest. Rates were around $20-30 per tonne for full-plate nickel in Singapore, South Korea and Malaysia
• Premiums in Shanghai were mostly stable while the arbitrage fluctuated during the past month - it was last at $110-150 per tonne on a CIF basis. Demand remains weak.
• Bonded stocks were at 60,000-70,000 tonnes at the end of July, the highest since FastMarkets started compiling data in January 2014
TIN PREMIUMS STABLE, CONCERN OVER INDONESIA PERSISTS
• Tin has fallen below $16,000 per tonne, with LME three-month prices last at $15,700.
• "Someone is squeezing the market and we will see the price drop to a low of $15,000 or even $14,000 - it will just be a matter of time," a European trader said.
• Attention was still on Indonesia, with some market players questioning future outflow from the country.
• "We could see lower exports but there is scepticism that the rules will actually be implemented given that exports have been well above expectations in past months despite the export cap," a trader said.
• Premiums were stable in Asia, with Singapore rates at $200-250 for low-lead material.
LEAD PREMIUMS STABLE DESPITE LOWER PRICES
• Lead premiums were stable around the globe amid thin buying interest despite lower LME prices - some producers are refraining from selling.
• There was some spot activity in India, which is the most price-driven market. CIF premiums for 99.97% metal edged up to $115-130 from $110-130 last week. Four-nines was unchanged at $155-170 CIF.
• The Taiwanese market was slow and stable, with no more LME stocks there.
• US Midwest premiums remained soft at 9-10 cents per pound delivered for 99.97% metal and at 12-13 cents for 99.99% after the recent increase in imports, primarily from South Korea.
(Editing by Mark Shaw)