LONDON, May 21 (Reuters) - Spot market premiums for copper have fallen slightly in Europe as restocking wanes and demand ebbs amid an escalating debt crisis, leaving manufacturers with little reason to stock up on the metal in anticipation of rising product sales.
The decline in premiums while not dramatic, does not bode well for a European economy that is heading into recession. Premiums are the price paid over and above the London Metal Exchange <CMCU)> cash price to secure delivery of the physical metal.
They denote the state of the physical or real economy, as opposed to futures markets which try to predict future price trends. Premiums, however, also indicate the extent to which futures market predictions are transpiring on the ground.
"Compared to say early April (copper) premiums are clearly weaker now. Underlying demand was better in the first quarter. People were selling a lot more copper products than they thought they would," said a Europe-based trader.
"Nobody talked about Greece in January, February, but now its back in the news. People are worrying about what's going to happen and its definitely had an impact."
Spot market premiums for grade A copper in Rotterdam were last qouted around $60-80 a tonne, according to Reuters sources. They were quoted at around $80-90 in mid-April.
A London-based physical metal trader pointed out demand for copper has by no means collapsed, and premiums remain underpinned by still tight supply and by demand from Germany, a key manufacturer whose economy remains robust.
But even in Germany Aurubis AG, the continent's largest copper smelter, said last week it expects demand for copper products to remain restrained given the uncertain economic outlook.
In mid-April, meanwhile, Aurubis chief executive Peter Willbrandt told Reuters copper product sales had fallen between 5 to 15 percent in Europe in the prior few weeks as customers placed smaller, shorter-term orders.
A Germany-based trading source said plans to upgrade the electricity grid by connecting the north to the south were on hold, with cable and wire makers reportedly still waiting on orders to deliver their products.
"The electricity grid should be under construction but its delayed," he said.
The source, from a Europe-based copper products maker, also said his company has experienced a 10 percent drop in demand this year, hit also by weakening economic growth in top copper consumer China.
On Sunday, China's premier Wen Jiabao called for additional efforts to support growth, after a recent series of economic indicators suggested the world's second-biggest economy will slow further in the second quarter.
The call helped support benchmark copper prices, though overall sentiment remained restrained given ongoing concerns about the risk of contagion should Greece default on its debt and leave the euro.