FOCUS – LME Week expected to jump start mating season

US copper consumers are in no hurry to sign annual deals but negotiations should pick up steam in November, market participants said.   

Several sources expect producers to offer annual premiums of around 2.5-3.0 cents per pound in Panama City, Florida, on a cost, insurance and freight (CIF) basis or 5-6 cents delivered to the Midwest, which is about a half cent lower than a year ago.  

For 2016, producers sold copper to US consumers on annual basis premiums for about 3.0-3.5 cents per pound into the Gulf Coast. When considering customs fees and inland freight costs, that equates to about 5.5-6.5 cents per pound delivered Midwest.

“I definitely expect premiums to be lower next year, mostly the rest of the world being such a drop-off. The US can’t stay about the same or you’re going to open arbitrage opportunities,” a US-based trader said.

The current issue for traders is the weakness of the spot market, which one trader described as “anaemic”. July and August are seasonally slow periods for the industry but October is typically when business improves; still, multiple sources told Metal Bulletin that the lack of quoting is of concern. 

This has been reflected in data – the macroeconomic picture deteriorated over the first half of 2016, according to the International Copper Study Group (ICSG).

In the first six months of year, US copper demand fell about 4% compared with the same period of 2015 and, outside of minor supply curtailments, annual production is likely to be little changed compared with 2015. 

“If demand hasn’t picked up by now, it’s over for 2016. October is really your last full production month [with] holidays in November, and really December is a two-week month,” another market participant said.

Several participants plan to meet during LME Week from October 31 until November 4 and use the subsequent two-week gap before the start of American Copper Council (ACC) meeting in Florida to put out initial quotes. If recent history is a barometer, contracts are unlikely to be signed till mid-November.


The situation is similar in Europe or Asia where benchmark cathode premiums are at depressed levels. Producers and traders expect a significant decrease in premiums for next year.

Last year, Codelco’s benchmark premium for Asia was set at $98 per tonne, while both Codelco and Aurubis settled on $92 per tonne in Europe. But market participants see Asian premiums tumbling to the $70s, with European premium offers may come in the $80s.

Unless the Asian benchmark falls into the $60s, buyers will trim their contractual volumes significantly, preferring to buy tonnages on a floating basis, consumers warned.

The Chinese government has injected historic amounts of stimulus to stabilise the economy and keep growth between 6.5-7% but optimism remains fleeting for the entire industry and the boom in the construction sector appears to be short-lived.

“Copper’s performance this year is actually beyond many people’s expectations, both in terms of prices and demand,” a Chinese trader said.

“But, of course, the strong demand is thanks to the hot property market this year, which means it will be even more difficult for the market to see further increases on a higher-than-expectation base this year. The tough situation will continue,” he added.

(Additional Reporting by Mark Burton, editing by Tom Jennemann)