By Chris Kelly
NEW YORK, June 3 (Reuters) - U.S. copper premiums crept higher this week, buoyed by rising shipping costs and a lack of available scrap metal, an issue that could keep primary cathode premiums on the rise in the months ahead.
"Premiums are moving slightly up because the freight rates are killing us," one Midwest dealer said.
"If you're going to any distance from the docks, you're probably anywhere from 5.5 to 7 cents per lb."
Premiums paid over the COMEX spot market price HGc1 now stand about 25 percent higher from the beginning of the year, when they stood in a 4.5 to 5.5 cent range.
Looking ahead, premiums should find further support from companies looking to secure metal ahead of planned maintenance shut-downs and employee vacation schedules that typically accompany the seasonally slower summer months.
"It's really going to depend on how much it is going to cost to get it out of the warehouses and get it to where you need it to go," the Midwest dealer said.
For a graphic on COMEX warehouse stocks, click: link.reuters.com/hen89r
Supply tightness in the secondary scrap market, as seen by the further contraction in price discounts to the COMEX spot price, was another factor likely to keep primary premiums buoyant this summer.
"If the scrap market continues to tighten, they will have to go to cathode. When there is demand like that, anything is liable to happen," the Midwest dealer said.
Spreads for Bare Bright copper, often regarded as the highest grade of copper scrap, narrowed to a 5- to 12-cent discount to the COMEX price, from 5 to 15 cents under at the end of the first quarter.
No. 2 copper scrap, which typically consists of a mixture of wire and tubing with a 96 percent copper content, was quoted at 42 to 48 cents under, in from 55 to 68 cents in March.
"If one is running a melting operation and you need high-grade copper units, be it bare bright wire or cathodes ... when one becomes hard to find, you're forced into buying the other," one East Coast scrap dealer said.
"If copper scrap continues to be tight, then they're going to start buying cathodes, which could squeeze premiums even higher." (Reporting by Chris Kelly;editing by Sofina Mirza-Reid)