Bearish sentiment builds in European base metals markets

Sentiment in the base metals markets in Europe was turning increasingly bearish, a number of participants told Fastmarkets on Tuesday June 21, with macro-economic uncertainties creating additional caution among consumers with the approach of the seasonal summer slowdown

There were decreases in spot premiums for aluminium, zinc and tin, while market participants in nickel and copper also noted bearish sentiment despite premiums still having support.

Persistent logistics issues also continued to weigh on consumer demand within the region, keeping premiums elevated despite recent weakness.

“No one can predict what the markets will look like after the summer,” one base metals trader told Fastmarkets.

Bearish sentiment weighs on premiums

Aluminium P1020 premiums have fallen across Europe, with the market expecting better availability of the light metal in the months ahead.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam, at $575-605 per tonne on June 17, falling from $580-625 per tonne a week earlier to its lowest level since March 25.

“Consumers’ order books are strong but there is a holdback - they are sitting back and not ordering, so there is a big disconnect,” one aluminium producer said. “They don’t want to buy right now, and that creates an atmosphere of uncertainty.”

“We still see two types of consumer,” a second trader said. “One is worried about the risk to demand in the second half of 2022, the other is about to go on holiday so is much more relaxed about demand from September onward.”

Duty-unpaid premiums also fell, with Fastmarkets’ daily assessment of the aluminium P1020A premium, in-whs dup Rotterdam, at $490-510 per tonne on June 20, down from $500-510 per tonne on June 10.

But premiums were still significantly elevated as a result of tight supply and logistics challenges in Europe, and these fundamentals were likely to keep premiums supported despite the bearish sentiment. Duty-paid premiums for aluminium P1020A, for instance, were currently 39% higher than on January 4.

“There is tightness nearby, but definite bearish sentiment for further forward months,” a third trader said. “Logistical bottlenecks are everywhere, and high energy costs are continuing to justify a high premium level. We are starting to see consumers requesting postponement of orders from [the third quarter] into 2023, which is a sign of potential fragility.”

This situation was reflected in the Italian zinc market, where premiums moved down from their record level set on June 14, following a rise in bearish sentiment and weakening demand.

“I am not sure that premiums can maintain these high levels for much longer,” one trader in the region said. If the premiums stayed high for the remainder of the year, he added, it would be difficult for consumers to operate because of other rising costs, such as energy.

Fastmarkets assessed the zinc SHG, min 99.995%, ingot premium, ddp Italy, at $480-530 per tonne on June 14, down by $20 per tonne from the end of May.

There were also decreases in the tin market, where increased volatility in underlying London Metal Exchange prices weighed on consumer sentiment.

The three-month tin price was subject to an 11.5% decrease in the week beginning June 13, falling to $31,184 per tonne on June 17 from $35,265 per tonne a week before.

Fastmarkets assessed the tin 99.9% low lead ingot premium, in-whs Rotterdam, at $1,300-1,500 per tonne n June 14, down by almost 7% from $1,400-1,600 per tonne on May 31.

But some market participants remained bullish toward the base-metals complex beyond the summer slowdown.

“It has quietened down further, but I feel like it’s the calm before the storm,” a fourth trader told Fastmarkets. “After August, things will bounce back from the summer doldrums, and energy costs will rebound.”

Copper, nickel buck trend

Despite the downward trend in several base metals, copper and nickel continued to hold steady across Europe, with delivered-Germany premiums for copper even rising.

“Copper is doing its own thing and going in the opposite direction,” the second trader told Fastmarkets. “The consumers there seem to know that the market is really tight and are taking action, but in other markets [people] are shying away. For other metals, people have shipped [material] into Europe, but with copper, no-one has [brought in material] in big volumes so it’s a different situation.”

The copper market in Europe has shown persistent tightness since the Russian invasion of Ukraine on February 24, when many companies began to ‘self-sanction’ against trading in Russia-origin material, despite there being no official sanctions yet imposed on Russian copper producers such as Nornickel.

Copper premiums in Europe, therefore, remained at record highs, with delivered-Germany premiums moving upward because of further increases in road haulage costs.

Fastmarkets assessed the copper grade A cathode premium, delivered Germany, at $170-200 per tonne on June 14, its highest level since Fastmarkets began assessing the price in 2017.

Similarly, the current tightness in the nickel market has kept premiums well supported in the short term, although participants told Fastmarkets that there has been a divergence in the market between the premium assessments for nickel products, especially 4x4 cathodes and nickel briquettes.

But in those markets which still had support from the fundamentals, participants said that bearish sentiment has begun to emerge.

“While there hasn’t been much weakness so far [in nickel],” a final trader said, “there is definitely a bearish tone building.”

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