* Premiums exceed $100/t on scrap shortage, port strike,
* Copper stocks fall at Trafigura's backlogged Antwerp
* Producers will rather sell stock to consumers - producer
By Maytaal Angel
LONDON, May 8 Premiums to secure copper in
Europe have pushed above $100 a tonne as a scrap shortage,
combined with a maintenance shutdown at a big producer and a
Chilean port strike, have led consumers to outbid warehouses for
Premiums are paid over the London Metal Exchange (LME) cash
price to cover delivery costs such as transport and
insurance, but they tend to rise above those costs when supply
is scarce or demand strong.
They have been rising steadily in Europe this year as
trading house Trafigura's warehouse firm NEMS paid
incentives of around $80-100 a tonne to attract copper to its
sheds in Antwerp.
There is so much metal at the port that it takes months for
clients to withdraw stock, earnings NEMS substantial rental
revenue in the meanwhile.
The increase in premiums long frustrated consumers making
products like copper wire and rod, as it increased their costs
by lifting premiums to the same level as the warehouse incentive
payment, despite a surplus of supply and weak demand.
More recently, however, consumers and other market
participants say they have been outbidding NEMS, paying premiums
of around $95-$110 a tonne for grade A copper on the spot market
in Rotterdam, from $50-$70 in late February.
According to some market participants, premiums were last at
these levels in early 2011.
"All consumers are tapping the spot market more," said a
Europe-based copper consumer.
"The tightness in scrap is a worldwide situation. Chinese
secondary refineries, which have to be fed scrap, are bidding
more aggressively in other markets, including in Europe," the
Copper demand has been weak in Europe this year due to poor
to non-existent economic growth, while global copper supplies
have been rising. Despite this, a supply squeeze has emerged.
The tightness is due to maintenance shutdowns at Boliden's
smelters in Sweden and Finland, a port strike in Chile
earlier this year that blocked nearly 60,000 tonnes of copper
exports from Codelco, backlogged stock in Antwerp
warehouses and the shortage of scrap.
Scrap supplies always dwindle when LME prices decline, as
merchants decline to crystallise losses by selling it at a lower
price than they paid, and as holders of junk metal have less
incentive to sell to merchants.
LME benchmark three month copper futures hit 1-1/2
year lows last month and are down some 8 percent for the year.
The scrap shortage is a particular problem for consumers, as
it forces them to tap the spot market for more costly refined
copper to use as an alternate feedstock for making products.
This consumer buying is unwelcome rivalry for warehouse
"We would rather sell to consumers. If consumers are paying
competitive premiums I don't think anybody will deliver to
Antwerp. Trafigura will have to pay higher incentives at the
moment," said the European copper producer.
Trafigura declined to comment on its warehouse operations.
According to LME data, copper stocks in Antwerp have been
rising steeply this year. By April 12, they accounted for nearly
all exchange registered copper stock in Europe. MCUSTX-TOTAL
Since then, however, copper stocks at the port have declined
by around 3,000 tonnes. Since late April meanwhile, stocks of
lead have declined by some 2,500 tonnes, while zinc stocks have
declined by some 65,000 tonnes since mid-February.
Although Trafigura's NEMS is not the only warehouse owner in
Antwerp, industry sources say most of the logjammed metal there
is located in its sheds, meaning the recent decline of metals
stocks there will hit its rental revenues the hardest.
"They (NEMS) will have to offer $110 a tonne or they won't
get copper units in, and if they don't get units in, the queues
will get shorter," a physical copper trader said.
(Reporting by Maytaal Angel; Editing by Anthony Barker)