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In-warehouse copper premiums skyrocket

Keywords: Tags  Kennecott Utah Copper Corp., Rio Tinto, in warehouse premiums, copper, warehouses, LME, London Metal Exchange, Suzy Waite


NEW YORK — In-warehouse premiums for copper at London Metal Exchange-approved warehouses have skyrocketed after an April 10 wall slide at Kennecott Utah Copper Corp.’s Bingham Canyon Mine forced the company to declare force majeure.

Traders told AMM that in-warehouse duty unpaid premiums for material in Chicago, New Orleans and St. Louis locations were being quoted at around $50 per tonne this week and as high as $60 per tonne in St. Louis, up from between $30 and $45 per tonne in St. Louis previously and a far cry from the $5-to-$10-a-tonne range reported in Chicago and New Orleans prior to the mine collapse.

“Ten dollars (a tonne) really has no bearing on today’s market, which is totally different from a week ago. What meaning does $10 have when you’re taking 25,000 tonnes of production out of the system? Don’t be surprised when (premiums) go from $10 (a tonne) when it’s dead to $50 (a tonne) when it’s not,” one copper trader said of in-warehouse premiums.

A second trader agreed that $50 a tonne for copper in St. Louis warehouses was fair in today’s market, although he added that he “personally would quote higher.”

“Chicago would be $50 a tonne as well,” the second trader said, adding that if he were to hear of any cheaper offers in the Midwest city, he plans to snap up the warrants himself.

A third copper trader agreed these much higher premiums to obtain LME copper warrants are not surprising given the Kennecott outage.

Kennecott informed customers in an April 15 letter that this month’s copper cathode shipments would not be impacted as a result of its recent mine collapse but that May’s refined copper shipments will be reduced. “Thereafter, we do not anticipate the ability to make further shipments for the foreseeable future,” the company said at the time (amm.com, April 16).

As a result of the incident, London-based Rio Tinto Plc, which owns Kennecott, lowered its initial forecast of mined copper production to 540,000 tonnes this year from February’s estimates of 665,000 tonnes and dropped its refined copper forecast to 205,000 tonnes from 305,000 tonnes previously (amm.com, April 16).

With a possible supply crimp on the horizon, more consumers may look to warehoused metal to meet their needs, hence putting upward pressure on in-warehouse premiums. Sources have predicted physical delivered copper premiums will also go up as buyers scramble to find material, with some already reporting higher quotes (amm.com, April 17).

Stocks in LME-approved warehouses in New Orleans have spiked to 176,200 tonnes as of April 16 from 75,775 tonnes on Jan. 2, with sources estimating that queues to get material from that city are as long as five months.

Stocks in Chicago and St. Louis have dipped from earlier this year, however, with Chicago holding 5,975 tonnes on April 16, down from 6,400 tonnes at the start of the year, and St. Louis stocks easing to 22,550 tonnes from 36,100 tonnes in January.

The rising cost of transferring ownership of copper warrants comes at a time when warehouses are also offering traders and producers attractive incentives to store material with them, which traders pegged at around $100 a tonne in some locations (amm.com, Oct. 12, 2012).

The fact that traders have taken these deals means their material is committed for some time to come however, a third trader said.
“My copper is all slated into New Orleans and it’s all slated (to stay there) for X amount of time,” the third trader said.

This means some will have to look to import new material, he said.

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