Copper consumers are trying to avoid taking metal from warehouses approved by the London Metal Exchange and going directly to producers instead, according to Nexans SA, the world’s second-biggest cable maker.
Getting metal out of LME warehouses is difficult, said Marie-Francoise Levelt, head of metals trading and copper purchasing manager at Nexans in Paris. Some 88 percent of LME copper stockpiles in Europe are in Antwerp, Belgium, and waits to get metal there are long, Macquarie Group Ltd. says.
“European producers are benefiting from this situation,” Levelt said. “People are trying to buy directly from them instead of taking material from the LME warehouses.”
Warehouse companies have been offering incentives to attract metal to their locations since the end of last year, and it’s resulting in rising premiums, Levelt said. Premiums are also rising because of a port strike in Chile, the world’s largest producer of copper, she said.
“It’s difficult to take some material out from the LME warehouse, because the availability is not there from the traders or the companies who have the material in,” Levelt said. “For the time being, we don’t see any shortage.”
Nexans buys about 450,000 metric tons of refined copper a year and 15,000 to 20,000 tons of scrap a year, according to the company. Less than 2 percent of the company’s copper purchases are made on the spot market, Levelt said. She’s also in charge of the company’s metal hedging.
“We try to avoid buying on the spot market, keeping a long-term relationship with our suppliers,” she said. “It’s better to have a direct connection with them regarding our requirements.”
Long waits for metals extend from warehouses in Detroit to New Orleans, Johor, Malaysia, Vlissingen, Netherlands and Antwerp, according to Euromin SA, the trading company that is part of Vitol Group. The waits are reducing any demand for material from those warehouses, Mike Baker, a risk manager at the company, said at a zinc conference in Amsterdam last week.
“Participants cannot generally afford the cost of both rent and finance incurred by waiting an extended period in order to access material,” Baker said. “Therefore they invariably do not even try to get material from a warehouse where a queue exists.”
Nexans rose 15 percent to 38.54 euros in Paris trading this year. It was part of phone-equipment manufacturer Alcatel SA until a spinoff in 2001.
Chile had port strikes over three weeks starting in March. That held back 60 percent of Chile’s copper exports, Mining Minister Hernan De Solminihac said April 4.
The surcharge copper buyers are expected to pay in Europe climbed this month to the highest level since 2006 and it’s the highest since 2007 in the U.S., according to Metal Bulletin data compiled by Bloomberg. Copper prices on the LME have dropped 9.8 percent this year as stockpiles in LME-monitored warehouses almost doubled.
Warehouse companies have been offering incentives in Antwerp as well as in the Malaysian city of Johor, the world’s largest holding of LME copper, according to Societe Generale SA.
“The consumer prefers a stable premium,” Levelt said. “It’s one of the reasons why the LME is considered as the last resort.”