U.S. Copper Fees Seen Higher After Mine Landslide and Waits

Copper premiums in the U.S., the second biggest user, are rising as waits for metal at some locations and reduced output at Rio Tinto Group are fueling perceptions of limited supply, according to Wood Mackenzie Ltd.

The fee in the U.S. Midwest has risen to 6 cents to 7 cents a pound from 5.5 cents to 6.5 cents a pound at the end of March, according to Ian Littlewood, an analyst at Wood Mackenzie in London. The surcharge, added to the price of copper on the Comex in New York, compares with 5 cents to 6 cents a pound in January, he said.

“Premia have edged a little higher,” Littlewood said by phone today. “That rise is more of a case of traders being canny and using the perceived tightness as an excuse to earn a little bit more money. Demand is steadily improving in the U.S.”

Rio Tinto’s Kennecott Utah Copper declared force majeure on copper cathode deliveries on April 16. The company’s full-year production of refined copper is set to fall by about 100,000 metric tons after a landslide last week at the Bingham Canyon mine in Utah, which Kennecott operates. Force majeure removes liability for natural and unavoidable events that prevent companies from fulfilling obligations.

“Initially I don’t think there is any immediate impact on supply” from the force majeure at Rio Tinto, Littlewood said. “People still have stocks. Premia have just edged up on that perceived tightness.”

Surplus Forecast

Supply of the metal used in pipes and wiring will top demand by 97,000 tons this year as mines boost output, near the 102,000-ton excess in 2012, according to Barclays Plc.

“One surplus on top of another means material should be more freely available,” Littlewood said. “Exchange stocks globally have risen very strongly over the past year. But most of that material in the U.S. is in New Orleans with the long queues to get material out.”

Copper stockpiles in London Metal Exchange-monitored warehouses almost doubled this year to 612,350 tons, the highest since September 2003, bourse data showed today. Inventories have risen in Malaysia’s Johor, the Belgian city of Antwerp and New Orleans.

“Rio Tinto’s Kennecott mine landslide will prove to be a problem here in May and beyond as people scramble to cover their copper needs here in the U.S.,” Mark Lewon, president of Salt Lake City-based scrap recycler Utah Metal Works Inc., said by e-mail today. They won’t be able to get it from scrap because that supply is also limited, he said.

Metal Lines

Supply of refined metal may be constrained because it takes four to five months to obtain copper at LME-monitored warehouses in New Orleans, Duncan Hobbs, an analyst at Macquarie Group Ltd. in London, said. The wait may be longer if other metals have to be delivered, according to the bank. The port city accounts for 86 percent of U.S. LME copper stockpiles.

Copper for July delivery was unchanged at $3.2025 a pound on the Comex by 11:28 a.m. in New York. The metal fell 12 percent this year. The U.S. accounted for 9 percent of copper demand last year, according to RBC Capital Markets.

(Updates with recycler’s comment in ninth paragraph.)
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