LONDON London Metal
Exchange warehouse companies operating in Antwerp, Belgium, are
offering incentives of $100 per tonne to attract copper on to
warrant there, sources told AMM sister publication
By doing so, warehouse companies
can earn rent on the material while it sits behind or in the
queue that has developed there as a result of large
cancellations of zinc, lead and steel towards the end of last
There were 484,850 tonnes of
metal stored in LME-listed warehouses in Antwerp on Feb. 15,
about 57 percent of which was held under canceled warrant.
The queue is the third longest
in the LME system, behind Detroit and New Orleans. Metal
Bulletin calculations suggest that it would take more than
520 working days, or nearly two years, to withdraw metal at the
back of the queue in Detroit, where more than 1.1 million
tonnes of metal are awaiting withdrawal.
Warehouse companies in New
Orleans began offering incentives of $100 per tonne to attract
copper into storage last year as the queue swelled there, and
sources said warehouses in Antwerp are now following suit (
amm.com, Oct. 8).
Nems Ltd., owned by Trafigura
Ltd., is the largest operator in Antwerp, while CWT Commodities
Pte Ltd., Erus Metals Ltd., Henry Bath & Son Ltd., Metal
Terminals International NV, Pacorini Srl and Vollers Belgium NV
also have sheds there.
Warehouse incentives have been
common in the aluminum market in recent years, but
traditionally copper has been perceived as a market that is too
tight for the practice to become commonplace. But there is now
firm evidence throughout the value chain that a surplus is
emerging: treatment charges on concentrates have risen, cathode
premiums have fallen and product sales have dropped.
On the LME, copper stocks have
almost doubled over the past four months to reach 400,000
tonnes, while the cash-to-three-month spread is in the widest
contango seen in two years.
In Europe, Metal
Bulletins Rotterdam premium has fallen to $50 per
tonne at the low end, down from as much as $100 at the start of
the year, making the warehouses incentives attractive to
"The physical market has been
very quiet and premiums have been under pressure, but now you
have a situation where warehouses are willing to pay quite a
lot," a copper producer source said. "Warehouses will pay $100,
but in the physical market premiums are maybe $60 or $70."
In the aluminum market, physical
premiums rose dramatically as consumers were forced to compete
with the incentives offered by warehouses, but sources said it
is less likely that such an escalation will occur in the copper
market, which is half the size and far less oversupplied.
"The thing about the copper
marketand the thing that makes it interesting to
tradeis that it flips very quickly, and being late to the
party can be very painful," an LME Category I broker said.
In the event that warehouse
demand is sufficiently strong to absorb the surplus material
and consumer demand then rebounds, there will be a swift
response in the form of tighter spreads, stronger premiums and
higher outright prices. As such, anyone holding material will
be encouraged to sell, while warehouses themselves will have
less incentive to buy, sources said.
"Warehouses only want to do this
in metals where there is a surplus, because then they know the
material will be in the warehouse for a long time because it
wont be needed," the producer source said. "If there is a
surplus coming in copper, and it looks like that might be the
case, warehouses will pay high premiums for copper.
"For the moment, consumers
wont have to compete because there is plenty of other
material around. A lot of spot copper in Europe is Russian
material, and that cant go into LME warehouses anyway,"
"For the moment, I expect this
trade to continue because theres a lot of surplus
material around thats got to go somewhere, so well done
to the warehouses for taking the initiative," the broker said.
"If youve got copper today you can either sell it to a
warehouse or carry it through the contango, perhaps making a
bit of a return and wait for physical premiums to pick up, but
the latter option might take a while."
A version of this article was first published by AMM sister
publication Metal Bulletin.