Copper cathode premium explained: what it is, who sets it and how to budget for it
Almost nobody pays the bare LME copper price. A cathode premium sits on top, and a rod, wire or tube premium sits on that. Here is what the premiums are, how annual and spot premiums differ, and how to budget them.
What is the copper cathode premium?
The LME copper price is quoted for Grade A copper cathode, the benchmark form of refined copper. The cathode premium is the amount added to that price for delivery to a particular place and period. It covers freight, insurance, financing and handling, and it reflects the local balance of supply and demand. In Europe and Asia it is quoted in US dollars per tonne. US premiums are usually quoted in US cents per pound; check the contract for which benchmark they sit on.
Annual and spot premiums
Large buyers and producers negotiate annual benchmark premiums for deliveries to Europe and to Asia. They are set once for the year and, for those contracts, they do not move with the market in between. Smaller buyers, and anyone buying outside a long-term contract, pay a spot premium that moves with how tight the market is. When the spot premium rises well above the annual one, metal is scarce where you are; when it falls, supply is easy.
Cathode premium, product premium and the price you pay
Price = LME copper price + cathode premium + product premium + delivery
The product premium covers the cost of turning cathode into the form you buy: wire rod, wire, tube, sheet or strip. It is often called the rod premium or the fabrication premium. The figures below are illustrative, not market prices.
| Part of the price | Per tonne |
|---|---|
| LME copper price | $10,000 |
| Cathode premium | $150 |
| Product premium (for example wire rod) | $250 |
| Price before delivery | $10,400 |
Premiums by region
- Europe. The reference is delivery to Rotterdam, with an annual benchmark and a spot premium in between.
- China and Asia. A negotiated annual benchmark, plus a spot premium; the premium at the Yangshan port near Shanghai is widely followed.
- United States. Quoted in cents per pound and shaped by the relationship between COMEX and LME prices and by trade policy. See LME vs COMEX copper.
Price reporting agencies such as Fastmarkets, Argus and SMM publish premium assessments and explain their methods. If a contract names a premium, it should name the assessment.
Budgeting copper premiums and PPV
A standard cost that fixes only the LME price misses every premium move. Budget the LME price, the cathode premium and the product premium as separate lines, and split the purchase price variance the same way; the purchase price variance guide shows how. Contracts commonly price copper off the LME price averaged over an agreed period plus the agreed premium, so check the averaging period as well as the premium. MetalAlert's probabilities are about the LME price, not the premiums; the copper price forecast covers the LME side.
Common questions
What is the copper cathode premium?
It is the amount added to the LME copper price for delivery of Grade A cathode to a particular place and period. It covers freight, insurance, financing and handling, and reflects local supply and demand.
What is the Yangshan copper premium?
It is the premium for copper cathode delivered to the Yangshan port near Shanghai, and it is widely followed as a reference for how tight the Chinese market is.
What is the rod premium or fabrication premium for copper?
It is the cost of converting cathode into the form a buyer needs, such as wire rod, wire, tube or sheet, added on top of the LME price and the cathode premium.
Is the copper premium included in the LME price?
No. The LME price is the exchange reference for Grade A cathode. Premiums for delivery and for the product form are added to it, so what buyers pay is higher than the LME price.
How do copper premiums affect purchase price variance?
If the standard cost fixes only the LME price, any move in the cathode or product premium shows up as variance. Splitting the standard and the variance into benchmark and premium lines keeps the number traceable.
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