EU copper premiums up on Trafigura storage play, Chile strike

Thu Mar 28, 2013 2:04pm EDT

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* Premiums rally 50 pct in a month, near $100/T in Rotterdam

* Copper stocks soar in Trafigura's logjammed Antwerp sheds

* Chile port strike, tight scrap add to pressure

By Maytaal Angel

LONDON, March 28 (Reuters) - A move by commodity trader Trafigura to ramp up rental revenues by drawing Europe's spare copper into its warehouses in Antwerp has combined with a Chilean port strike to push Europe copper premiums near triple-digit levels.

Premiums are paid above the London Metal Exchange cash price to cover delivery costs including transport and insurance but also serve as an important indicator of supply demand dynamics on the ground.

"Premiums are up in part because of competition from warehouse companies. It's the cumulative effect over a period of time of mopping up the unallocated units in the market," Macquarie analyst Duncan Hobbs said.

Trafigura warehouse unit NEMS has for some months been offering incentives of around $100 a tonne above the LME cash price to draw copper into Antwerp, capitalising on a multi-month backlog there that assures it lucrative rental revenues.

Despite this squeeze on supply, copper premiums in nearby Rotterdam remained depressed until recently, when a potential supply shortfall from top exporter Chile and a decrease in scrap supply in Europe added to pressures in the market.

"The situation in Chile might intensify, the Russians are shipping less, scrap is not available. I don't know where people will get the metal from unless they come to us, in which case it will be even more expensive," a Europe-based copper merchant said.

Industry sources say premiums for grade A copper on the spot market in Rotterdam have risen some 50 percent in the space of a month. They are currently trading at $80 to 100 a tonne versus $50-70 at the end up February.

LME data show that since Jan. 2, copper stocks in Antwerp have risen by 160 percent to account for some 83 percent of all copper inventory in LME-approved warehouses in Europe, making it effectively unavailable to the market.

Also nudging premiums higher, financing deals that tie up copper as collateral have become more attractive to some investors, allowing them to cover the cost of holding metal while they wait for premiums to rise.

Such deals work by taking advantage of a market spread known as contango, in which cash prices are cheaper than futures prices . They are profitable when the spread is wide, money is cheap and warehouse rents are low.

"Financing deals are not a big concern right now because there is enough copper around, but if the tightness in scrap continues, then of course any seller will look for a higher premium," a source at a European copper consumer said.

His concern may be premature, however.

As of April 1, changes to LME rules will force backlogged warehouses such as those in Antwerp to release much more than the current minimum of 3,000 tonnes a day after that minimum requirement was widely criticised for exacerbating queues for metal.

Industry sources say the new rule may lessen the logjam in Antwerp in particular.

"I don't see (copper) premiums going much higher. It's possible for warehouse companies to offer higher incentives. but LME rule changes take effect next week, which will potentially improve access," Hobbs said.

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