In Commodity News 27/04/2015
The world’s physical copper traders are in a funk.
Orders from fabricators in China have slowed as a building boom ebbs; some annual buyers are seeking to delay deliveries; and data this week showed the world’s biggest user buying record volumes of intermediate copper concentrates, not the finished material that has long been the mainstay of global trade.
Now traders are bracing for further increases in visible inventory as financing deals unwind and demand wanes, likely to increase pressure on premiums that have already tumbled to their lowest in two years.
“There’s barely any spot business. Margins are tight. Everyone’s fighting for business,” said one trader, echoing a sentiment widespread at the industry’s biggest conference of the year, CRU Copper conference, in Chile last week.
Traders say another 150,000 tonnes of metal will likely land in London Metal Exchange-registered warehouses in the next month or so. That would take LME inventory above 500,000 tonnes for the first time since October 2013, adding to the near doubling in stocks over the past nine months.
Exchange inventory rose by 300,000 tonnes in the first quarter, more than many had expected, as a cash premium over forward prices drew out excess stock from last year. That structure, known as a backwardation, has disappeared this week for the first time in nine months.
An unfavorable arbitrage between Shanghai and London prices has also slowed the pace of buying.
One London-based trader said a customer had asked to sell tonnage back that he had bought at $90 per ton for half the premium. While it was not a common request, he said it reflected weakening demand as fabricators work through inventory.
Some fabricators are asking to delay taking delivery on monthly tonnage booked on long-term contracts.
Copper in bonded warehouses in Shanghai or due to arrive in the city soon were offered at premiums of about $50-$60 over cash London Metal Exchange prices this week, the lowest since the first quarter of 2013, traders said.
Sluggish demand comes as the market continues to recover from the financing scandal in Qingdao, one of China’s biggest ports, last year, that has roiled trading, stalling purchases of copper to be used as collateral against loans.
CONCS VS CATHODE
The slow activity for copper cathode is in stark contrast to busy spot trade in concentrate, an intermediate product that smelters use to make refined metal, as blending by miners like Codelco [COBRE.UL] has spurred the most dynamic market in years.
On Wednesday, Chinese customs data showed the world’s top consumer last month imported 1.3 million tonnes of concentrates, up 41 percent from last year and the highest on records going back to 2006.
Analysts said the rise was likely due to the country’s growing refined production as smelters needed raw material.
Refined imports dropped 5 percent to 306,710 tonnes.
“China’s still sucking in copper; it’s just in the form of concentrates rather than refined metal,” said Citi analyst David Wilson.
Weak domestic demand and tight credit will likely push concentrate imports lower in April and May, though, the bank forecast.
Still treatment and refining (TC/RC) charges that miners or traders pay smelters to treat their material have come under pressure recently as the scramble for raw material has tightened supplies.
Traders said spot clean material was selling for around $100 per ton and 10 cents per lb, down from $115/11.5 cents earlier this month.
