London (Platts)--1May2009
Despite the London Metal Exchange/Shanghai Futures Exchange arbitrage for
copper narrowing, European copper premiums remained supported by strong demand
from Asia this week, althpough physical demand levels in Europe continued to
be dire.
Market sources agreed that the market was two-tiered, and while warrant
numbers quoted for metal which could be headed for China were elevated, they
were not reflective of physical demand or representative of the European
domestic demand.
Platts physical premium assessments for Grade A metal, basis CIF
Rotterdam and CIF Livorno, were at $50-70/mt plus LME cash, from $60-80/mt
last week, while CIS cathode, CIF Rotterdam, was unchanged at flat to $10/mt.
A European trader said while the copper LME/Shanghai Futures Exchange
arbitrage had narrowed, there didn't seem to be any sign of metal flows to
China slowing down. "I'm actually surprised at how much has been done
considering the arbitrage has come in," he said.
The trader said the global copper market was a "dichotomy," with Asian
demand strong and Europe's dire. "You'd expect them to draw closer together --
but that has not happened," he said. The trader said after struggling to get
$40/mt for European copper warrants last week, he had sold several hundred
tonnes at $80/mt this week.
"The metal is presumably going to China -- so good luck to them," he
said, suggesting that high warrant numbers and the more narrow arbitrage must
be cutting into the profitability of such a deal. "There are also two markets
in Europe," he said, explaining that one was the international market where
warrants, held by a few players, were being offered at high numbers; and the
other for actual physical consumers at much lower numbers.
He said warrants at $80, converted to a CIF Rotterdam number of around
$105/mt, which was no reflection of weak physical demand levels. He pegged the
consumer premium level at around $50-60/mt, CIF Rotterdam. "So little business
is being transacted, but the best reference is the level at which warrants are
being sold, numbers of $105-110/mt CIF are fanciful. They do not represent the
physical market," he said.
A producer said he had been sold out to China for several months and
European cathode spot inquires had "seldom" come in. He noted, however, that
rod sales seemed to have bottomed. "We're not getting a rush on the phone, but
we're doing bits and pieces here and there," he said, adding: "So that can't
be bearish." He said cathode premiums, however, were "all over the place" at
anywhere from $40/50/60 to $70/mt on a CIF basis. He said the "warrant plays"
were not a reflection of genuine European demand and trade was still very
slow. Meanwhile, he said standard grade was last heard around $10-15/mt and
while supply of grade 2 scrap in Europe was tight, high-grade scrap, for which
standard or Grade A cathode was substitutable, was not.
Regarding China, he said everyone was staring at the arbitrage, seeing it
narrow, but still shipping to China. "It's a strange market," he said, adding
that metal was hard to sell, but premiums were high for would-be buyers. "The
market has never been more opaque or distorted. It's very hard to take a real
view," he said.
A Southern European source said he'd seen Livorno in-warehouse premiums,
jump to $65/mt from $5-10/mt at the beginning of March. "But there is no
physical interest," he said, adding that he also saw the European market split
in two -- with the domestic premium level so far away from the international
traded level.
A second European trader said Asian demand was still dominating European
trade. "For metal to be attracted to Europe, instead of China, premiums would
have to be at three-figure numbers," he said.
A London-based trader said copper trade in Europe was very thin as all
the copper had been moving out of Europe, attracted to Asia. "The million
dollar question was if demand could pick up while the economy was in the
doldrums. But it will spike at some point," he said. He noted that normally Q2
was a strong quarter but a previous performance was no guarantee of a future
performance. He said he'd heard warrants traded at $85/mt and that they were
tightly held by few players. "Those buying warrants are shipping to China," he
said, suggesting that domestic consumers were not buying spot parcels at those
numbers. He said he'd not heard much standard grade traded.
--Michelle de Klerk, michelle_deklerk@platts.com
Similar stories appear in Platts Metals Week.
See more information at http://plattsmetals.platts.com
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