Copper premiums traded at fresh seven-year highs in Rotterdam this week on the tightening availability of scrap, which has been caused by lower prices for primary material on the London Metal Exchange.
Most of the premiums over the London Metal Exchange cash price reported to Metal Bulletin on an in-warehouse Rotterdam basis this week were at $110-150 per tonne, up from $100-140 last week, and up from $70-100 at the start of the year.
Premiums have moved to levels last seen in July 2006 after LME prices fell, leading to lower volumes of scrap availability.
Tightening supply of secondary metal has caused fabricators – a majority of whose copper feed often comes from scrap – to look to purchase cathode instead.
Warehouses have also helped to boost premiums by offering incentives of up to $120 to bring copper into storage, market sources said.
Rising premiums in the physical market and demand for material among warehouses, traders and financiers continues to offer a strong sales channel for producers.
Consumers have to outbid warehouses to secure material, because of the shortfall in units caused by the tightness in scrap, market sources said.
Scrap supply is not expected to increase or premiums ease over the coming weeks, market sources said.
In terms of scrap supply, they pointed to the decline in average cash copper prices on the LME since March, when they averaged $7,666 per tonne. In April prices averaged $7,202 per tonne, while in May they were $7228.
The three-month LME copper official price was $7,010/7,010.5 per tonne on Tuesday June 18.
“I expect premiums to increase, particularly as incentives are being offered to attract material into warehouses,” said a consumer, who had not bought on an in-warehouse Rotterdam basis.
“Our competitors are warehouses, offering incentives of $100-120, so we’re trying to buy directly from producers,” he added.
Most market sources assessed premiums at around $130-140 at the start of the week, although some sources had discussed business at above $150 per tonne.
“There’s practically no copper available in Rotterdam,” said a producer.
One trader reported having to pay as much as $160 per tonne in recent days to secure several hundred tonnes of material on an in-warehouse basis.
“Premiums are much higher due to the extremely low copper prices having an impact on scrap supply,” the trader told Metal Bulletin, having rejected an offer of $170 per tonne.
Others were uncertain whether the premium to obtain material in Europe had reached such high levels yet.
“Yes, there’s nothing in warehouse Rotterdam. Stocks are low, so for a while it’s not been liquid. European producers are well sold, but parcels have arrived from Chile. If someone’s in urgent need, I can imagine they’d be paying $130-140, but $160 makes no sense. To get it on the truck it’s another $35, so it must be really urgent,” said a second trader.
Fleur Ritzema
fritzema@metalbulletin.com
Twitter: FleurRitzema_MB