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Euro spot copper premiums slide; contract talks in focus

Keywords: Tags  European spot copper premiums, scrap, copper, Rotterdam copper premiums, China, Europe, Corporaction Nacional del Cobre de Chile, Codelco London Metal Exchange

LONDON — Spot copper premiums are easing back toward $100 per tonne in the European market as scrap supply improves and traders offer material more freely, sources told AMM sister publication Metal Bulletin.

Metal Bulletin’s in-warehouse Rotterdam copper premiums fell to $105 to 130 per tonne Sept. 3, down from $120 to $140 at the end of August and eight-year highs of $160 in mid-July.

The decrease in premiums has coincided with a moderate rally in outright copper prices on the London Metal Exchange over the past month that has taken copper prices above the $7,000-per-tonne threshold.

A further upward price move could start to sap China’s strong appetite for imports, while simultaneously triggering an increase in copper scrap supply. Both could weigh on the high premiums seen recently across the globe, sources said.

The price rally has already contributed to a slackening in scrap supply in Europe, easing conditions for fabricators who were forced to substitute high-grade secondary feed for cathode due to the earlier breakdown in scrap supply as prices dropped below $7,000.

At the same time, as scrap supply has improved, there are signs that China’s end-use demand for cathode might not be as strong as recent imports suggest, which could in turn put pressure on premiums outside of Asia.

The slump in spot premiums should also be examined in the context of negotiations for 2014 supply contracts, which will kick off in earnest next month during LME Week, sources said.

"It is that time of the year when people start thinking strategically about supply; you see that not only in cathode premiums but in concentrates as well," the analyst said.

Last year, Corporación Nacional del Cobre de Chile (Codelco) agreed to term premiums of $85 per tonne with European consumers and around $100 for Asian customers. "The weaker spot premiums will play into consumers’ hands, but the consensus at this stage is still that contract premiums will rise, particularly in Asia," the analyst added.

At the time, sources said Codelco and other producers might struggle to contract substantial tonnages on those terms at a time when spot premiums were quoted at $50 per tonne.

Today, the situation has reversed. Spot Shanghai premiums are at $160 to $190 per tonne, still nearly twice as high as contract terms, even after the drop from highs of $205 to $220 in early August.

"It’s quite unusual to have any sort of agreement at this early stage, but there seems to be little doubt that premiums will go up. It’s just a question of how much," the physical trader in Europe said.

A version of this article was first published in AMM sister publication Metal Bulletin.

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