Asia copper premiums climb on Chile strike, India smelter closure

Thu Apr 4, 2013 11:30am BST

* Copper cancellations more than double in past ten days

* Singapore copper premiums CU-GDA-SG climb $20 on week

* Traders complain metal is not accessible

By Melanie Burton

SINGAPORE, April 4 (Reuters) - Copper premiums in Singapore have climbed to their highest since May, fuelled by a port strike in top producer Chile, and a force majeure event called by India's largest copper smelter, traders in Singapore said.

Premiums, which consumers pay on top of London Metal Exchange cash prices to get metal, are expected to rise further when markets in top consumer China reopen on Monday after a two-day break, they said.

Premiums for Grade A copper warrants in Singapore warehouses CU-GDA-SG were quoted at $50 to $65 from $30 to $40 last Thursday, traders said, the highest in almost a year.

"Premiums all across Asia have gone up. There's talk Codelco is going to have some delivery problems because of the port strike. The Indian smelter yesterday also declared force majeure on shipments," said one warrants trader based in London.

Rapidly spreading port strikes in export-dependent Chile are taking a growing toll on copper shipments in the world's leading producer of the metal.

World No.1 copper miner Codelco has said nearly 60,000 tonnes of its copper is blocked, while global miner Anglo American told Reuters the port strikes had triggered "difficulties for our exports."

Sterlite Industries Ltd, India's largest smelter, has halted deliveries of copper after it shut down last week due to complaints over emissions.

Sterlite produces more than 300,000 tonnes of copper per year and accounts for around half of Indian supply. Some 45 percent of production is exported while 55 percent supplies domestic users, a company spokesperson said.

Several Indian trade houses based in Singapore noted a flurry of enquiries from Indian end users for copper cathode as well as scrap.

"The bigger clients are still getting material -- but the question is for how long," said a trader based in Singapore.

He quoted European origin cathode as high as $60 to $70, and LME-registered African origin copper at $50 or double last week's $25.

Adding to the lift in premiums was increased buying from China, several traders said, as demand picks up into the seasonally strongest second quarter, with premiums expected to firm further next week.

"(Premiums) are up around $20 from last week, because China is short of material too," a third Singapore-based trader said.

TIGHT SUPPLY?

Reflecting an increase in orders for copper, cancelled warrants -- metal to be delivered out of warehouses and not available to market -- have more than doubled to 143,975 tonnes in the past ten days, to stand at one quarter of LME stocks.

Latest data showed a jump in new orders for Asian-based stock, with cancellations of around 24,000 tonnes in South Korea and Singapore on Wednesday. <0#MCUSTX-LOC-GRD>

But traders said the new orders may reflect dominant market players grabbing easily available metal to force premiums higher for end users.

"Some of these physical guys are maybe getting caught short," the trader in London said.

"But given the steep price falls in copper, somebody may be cancelling all the warrants in Asia to push premiums up a little bit and some of these news headlines are helping," he said.

LME copper prices touched an 8-month low below $7,350 a tonne on Thursday.

Bonded copper stocks in China are just shy of records while inventories held in Shanghai and London exchange systems are towering at their highest in around a decade, but traders say it is still tough to get. MCU-STOCKS CU-STX-SGH

"Bonded stocks are near 1 million tonnes, yes, but that doesn't mean this material is accessible. The stock is there, but you can't get it out, the same goes for LME stocks," said the third Singapore trader.

Commodities trading house Glencore, whose warehouses dominate the ports of Johor, Vlissingen in the Netherlands and New Orleans, houses the majority of LME copper stocks.

Since December, it has shunted much of the global surplus of copper into Johor as it extends a strategy to lock up metal to earn lucrative warehouse rentals and premiums, industry sources said in March.

Metal gets stuck behind a backlog that snarls out for around three months, making supplies from that location less attractive for consumers.

Even so, premiums to obtain metal from Johor edged up to around $15, from $5 to $10 in late February.

"I think consumers must be almost crying now," the third Singapore trader said. (Additional reporting by Anupama Chandrasekaran in Chennai; Editing by Clarence Fernandez)