European demand for industrial metals has rebounded since the start of the year, indicating a reversal of sentiment in the region’s important manufacturing sector.
Physical traders, who are often the first to witness changes in sentiment in commodity markets, said purchases had picked up in recent weeks from the weak levels of late 2011.
“It is completely the opposite of a few weeks ago,” said an executive at a large copper producer. “Europeans are having better demand than expected so they are on the spot market.”
The improved sentiment has been reflected in physical premiums – the amount a buyer is prepared to pay above the exchange price for physical delivery to a particular location.
Premiums for copper in Rotterdam have risen to $70-$80 a tonne, up about 50 per cent since the start of the year, while premiums for duty-paid aluminium have risen about 20 per cent to more than $200 a tonne, according to Duncan Hobbs, analyst at Macquarie.
Easier access to credit after the European Central Bank’s longer-term refinancing operation, as well as a stronger euro, have aided sentiment, traders said. Moreover, end demand is growing, albeit at relatively low rates, in some important industries such as autos and aerospace, particularly in northern Europe.
“You’ve seen the Houdini routine of the euro several times in the past year,” said Kevin Tuohy, head of European metals sales at INTL FCStone, a brokerage. “That has had a lot of influence in giving people more confidence for the future – Europe is not grinding to a halt.”
According to the European Commission, economic sentiment in the eurozone in February rose to the highest level since October.
The better sentiment in Europe as well as the US has helped to lift metals prices – even though buying from China, the world’s largest consumer of metals, remains relatively subdued. Copper for delivery in three months on the London Metal Exchange has risen 14.1 per cent this year to trade at $8,620.25 a tonne on Thursday, while aluminium has gained 16.6 per cent to $2,356 a tonne, a five-month high.
Nonetheless, companies remain cautious, traders say. In part, the stronger premiums for copper reflect the fact that European consumers booked lower quantities of metal under annual supply contracts this year and so have turned to the spot market. The strength in aluminium premiums largely reflects the popularity of financing deals that restrict the amount of metal available.
“Demand is better than it was but let’s say we’re not exactly rushed off our feet,” a trader at a large aluminium supplier said.
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