Codelco offers cathode premium at $98 to Chinese market for 2016

Codelco is offering copper cathode premium at $98 per tonne to Chinese buyers for the coming year, down $35 on the benchmark offer for 2015, trade sources told Metal Bulletin on Monday November 16.

Codelco is offering copper cathode premium at $98 per tonne to Chinese buyers for the coming year, down $35 on the benchmark offer for 2015, trade sources told Metal Bulletin on Monday November 16.

Following Pan Pacific Copper’s decision to reduce its 2016 contractual premium to $105 per tonne, a $10 drop, many market participants expected Codelco would establish its benchmark at about the same level.

However, on Monday the Chilean state-owned producer announced a 26.3% drop in its 2016 premium, in what market participants believe is a response to a reduction in contractual orders in 2015 and rising competition for business in the Chinese market.

Poor copper premiums this year caused losses for traders who signed long-term deals at either $133 per tonne offered by Codelco or at about the $120 per tonne level from other suppliers, only to find the spot market trading below those levels.

The monthly average of the premiums for copper in-warehouse Shanghai assessed by Metal Bulletin have not been above $120 per tonne throughout this year.

With supply set to increase further against the backdrop of slower demand growth in 2016, many traders and copper users in China were considering running a larger exposure to the spot market next year to avoid losses on contractual premiums, market sources said.

Ahead of the Codelco offer on Monday, some traders were offering Chinese customers annual premiums of $90-95 per tonne in a bid to win business, while some rival producers have also become more open to offering monthly floating spot premiums in supply contracts.

Facing such competition, Codelco may have felt it was necessary to reduce its own benchmark premium aggressively to avoid a sharp drop in contractual orders, market sources said.

Chinese buyers reduced their long-term bookings during mating season last year due to the tight credit lines and a slowing domestic economy, leaving the Chilean producer with larger tonnages to sell in the spot market, according to trade sources.

“We got call from Codelco a few months ago asking if we are interested to buy some cathode; it has never happened before that Codelco has actively contacted us,” a Chinese buyer said.

A source at a major Chinese copper trading house told Metal Bulletin that his company had received the $98-per-tonne offer, but added that it may seek a discount on the benchmark. The premium was confirmed by three other buyers who had also received the same offer.

Codelco declined to comment.

Kiki Kang
kiki.kang@metalbulletinasia.com

What to read next
The three-month copper price on the London Metal Exchange has slumped significantly since hitting an all-time high of $11,104.50 per tonne on Monday May 20
Copper fabricators in China and the wider Southeast Asian region continue to feel the pain of high copper prices on futures exchanges and a lack of new orderbooks, with some having already asked for a postponing of shipments of long-term copper cathodes, sources told Fastmarkets in the week to Wednesday, May 15.
Could the copper market bullish marathon be taking a mini break? Fastmarkets senior analyst Andy Farida looks at London Metal Exchange copper price movements.
Global copper futures prices are in a frenzy, with record highs being logged on the New York-based Commodity Exchange (Comex), London Metal Exchange and Shanghai Futures Exchange (SHFE) in recent days
Copper prices have pushed up on global metal exchanges in recent weeks and the London Metal Exchange three-month copper price hit an all-time high on Monday May 20, but what are the key reasons behind the record-breaking surge in prices?
Fundamental supply tightness was part of the reason behind this week's LME three-month copper contract all-time high, but the rate of change was also down to an influx of financial investors and the interconnected squeeze on short positions on COMEX, sources told Fastmarkets