Base metals futures climb and spot trading hampered

The base metals complex has been on a climb on futures exchanges globally but the surge is not reflected in physical markets, with buyers generally staying out of the market due to elevated prices, sources told Fastmarkets

Copper, which is a key barometer for economic activity, led the gains among the complex, with the London Metal Exchange three-month copper price surging to an all-time high of $10,954 per tonne on May 20 and up by 27.4% from the start of 2024. But the record-high futures prices have placed spot trading at a standstill.

“Spot activity came to a halt [and] spot buyers are out of the market with market fundamentals totally being ignored,” a copper cathode trader in Shanghai said.

“My clients from Vietnam are asking for a postponement in the shipment of copper cathodes because they do not have new orders at current copper prices,” a copper cathode trader in Singapore added.

Fastmarkets assessed the daily benchmark copper grade A cathode premium, cif Shanghai at a discount of $5-25 per tonne on Thursday May 23, compared with a discount of $0-15 per tonne a week earlier

The current benchmark assessment marks the lowest level, according to Fastmarkets’ records which date back to 2015.

Tepid spot buying has also been observed in aluminium, zinc and nickel markets, with spot participants pointing out futures prices are disconnected with real demand, sources said.

“Recent significant Shanghai Futures Exchange (SHFE) aluminium price increases stimulate cargo holders in the spot market to sell the metal to reap profits but buyers are reluctant to purchase the light metal at such a high price,” an aluminium trader in Shanghai said, adding that some aluminium profile plants are reducing production lines or only operating during daytime.

“Those downstream producers have slowed down on stockpiling raw material. Their own consumers have also postponed purchases, while waiting for prices to fall,” the Shanghai-based aluminium trader added.

“I do not think the continuous upward movement of the SHFE zinc price is stimulated by actual demand but rather, it follows the price increase of LME zinc, which is mostly affected by macroeconomic sentiment,” a zinc trader in Shanghai said.

The most-traded zinc July contract on the SHFE closed at 24,920 yuan on Wednesday May 22, marking a new high since June 2022.

“The factories’ inventory level has dropped to a low very level because they are cautious in restocking on such high zinc prices amid limited buying appetite in spot market,” the Shanghai-based zinc trader added.

Higher zinc prices have pushed prices for hot-dipped galvanized steel coil (HDG) higher and weighed on HDG traders who have been struggling with poor demand, sources told Fastmarkets.

“The costs for buying HDG from [Chinese mills] have increased by over 100 yuan per tonne [following the recent jump in zinc and steel prices] but our sales prices were up by only 20-30 yuan per tonne due to sluggish demand across end-users,” a steel trader in Shanghai said.

A lack of spot demand from electric vehicles (EVs) and stainless steel markets has also muted spot liquidity in nickel market, market participants said.

“LME nickel price rally has lost steam, which has driven up feedstock MHP price too but I am not sure if it could pass on the higher costs downstream,” one precursor plant source said, citing the mounting pressure nickel sulfate producers currently face.

Fastmarkets’ assessment of the nickel mixed hydroxide precipitate outright price, cif China, Japan and Korea, was $14,700-16,000 per tonne on Wednesday May 22, up by 5% from May 21.

Fastmarkets most recently assessed the price of nickel sulfate, min 21%, max 22.5%; cobalt 10ppm max, exw China, at 30,500-31,000 yuan per tonne on May 17. This was up by 2.5% week on week and up by 3.9% from 25,000-26,000 yuan per tonne at the start of 2024.

“Nickel price is crazy now and it is not in line with the fundamentals. Downstream buyers have basically stopped buying anything until the price returns to normal,” a nickel trader in Shanghai focusing on domestic trading said.

This is also the case in European nickel market, with European participants reporting silence in nickel cathode trading in the recent weeks due to the elevated prices, sources told Fastmarkets.

The global production cut of ferronickel, the stainless steel feedstock, has been narrowing its discount in 2024.

But trading of ferronickel was quieter because factors like the narrower discount and higher LME nickel price are making the feedstock too expensive for Chinese stainless steel mills to buy, according to sources.

The existence of the cheaper alternative nickel pig iron (NPI) has also dampened mills’ buying appetite for ferronickel, sources said.

“We don’t want to sell in China now because Chinese buyers want deeper discounts due to high LME price, which we cannot accept as the supply of ferronickel is very low. We would rather sell that in Europe where we can have a much narrower discount,” a ferronickel producer source said.

Fastmarkets’ monthly assessment for ferro-nickel premium/discount, 26-32% Ni contained, cif China was at a discount of $2,500-3,100 per tonne on April 29. This was compared with a $2,400-3,000 per tonne discount in March.

Meanwhile, changes have also been observed in a shift of nickel production amid high futures prices, with Chinese battery makers opting to producing electrolytic nickel to profit from the more valuable nickel metal, sources told Fastmarkets.

Output of electrolytic nickel, which is a form of nickel metal made from nickel sulfate, has been rising steadily since last year. The volume jumped to a peak as high as 30,000 tonnes per month during the first quarter of 2024 and it is estimated to possibly increase by another 1,000 tonnes in May, according to sources.

A shift in nickel mixed hydroxide precipitate (MHP) pricing mechanism in the wake of surging LME nickel price to find a balance between different mechanisms was also observed, sources said.

Market participants currently calculate the outright price by taking the current payable and LME price, while applying a calculated discount to avoid any additional volatility in LME nickel price to lock in profits, sources said.

They had previously used the price of nickel sulfate and tolling fees to calculate the outright MHP price, which has lead to a wide gap between the outright price calculated by the conventional way and the payables, sources told Fastmarkets.

Zihuan Pan in Shanghai also contributed to the story.

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