Tentative Improvements

February 28, 2013
RTGE Staff

Nonferrous grades of scrap metal have been moving up at a slightly narrower trading range over the first few months of 2013. Despite the slightly muted movement of the metal, the market for copper and aluminium could see some modest resurgence in price and demand through most of 2013.

The overall improvement in copper, aluminium and other nonferrous metals are being propelled by an improving U.S. economy, as well as perceived growth in China’s economy. Adding to the general optimism, by the middle of February Chinese industry was to return from its Lunar New Year holiday.

The improvement could take hold despite continued problems with the European economy. The well documented economic problems throughout Southern Europe could expand to other parts of the continent. One recent report notes that Germany, the largest European economy, saw its GDP decline in the final quarter of 2012, according to Reuters. France, owner of another major European economy, also saw a decline in its GDP during the fourth quarter of 2012.

The result, according to some commodity watchers, is a European economy that will likely struggle for at least one more quarter before finding better footing. With that in mind, some of the base metals will be under pressure and may not see a sharp upswing in prices until later in the second quarter of 2013.

For copper, a key indicator to show the direction of the metal will be China’s purchasing power. A number of optimists feel that China’s new leaders will inject significant capital to ensure the Chinese economy continues to grow at a 7% to 8% level.

For copper, this could be significant news. The country consumes around 40% of the world’s copper, meaning that its buying patterns will likely play a significant role in the overall market’s direction.

A challenge, several scrap metal recyclers have noted, is that the supply of copper scrap to meet any new demands will be limited, especially out of Europe. With less copper scrap available, European consumers could be hard-pressed to fill their inventories.

The United States also could help prop up global markets for a host of nonferrous metals. Copper and aluminium both could benefit from a healthier U.S. economy.

Some copper forecasters are less sure that the Chinese economy will continue to grow at its present pace. Sources who feel that copper could begin a slide note that the Beijing government could announce policies cooling off the property market.

Europe, most often referred to for its struggling economy, is showing some positive indications. Norsk Hydro, a large Europe-based aluminium producer, recently announced that it expects to see aluminium production continue to recover through 2013 after bottoming out in 2012.

In an interview with CNBC, Jorgon Rostrop, Norsk Hydro’s chief financial officer, expressed confidence that aluminium markets are showing signs of improvement. While recognizing that Europe continues to struggle, economic improvements in China and the United States will help strengthen aluminium markets, he says.

The Norwegian company, one of the largest aluminium producers in the world, said that in 2013 it anticipates global primary aluminium demand outside of China will increase by 2% to 4 % against a 1% rise in 2012.

In a recent interview with Dow Jones, Norsk Hydro’s CEO Svein Richard Brandtzaeg said, “The market (for aluminium) has been in overcapacity for quite some years, but we expect it to be in better balance this year.” Towards the end of last year, aluminium’s market surplus was already starting to decrease, he said.

“The appetite for new investments [in production] has depleted due to low profitability in this industry and I think what the industry faces now is a better supply/demand balance,” he said.

While scrap processors throughout Europe are moderately optimistic about the market for nonferrous metals later this year, several issues are becoming more pressing. Many scrap metal recyclers on the continent say the generation of new supply continues to present challenges, as it has for several years. Industrial scrap generation continues to decline as manufacturing throughout Europe continues to run at less than optimum figures.

While there are overall signs that the global economy is improving, the exchange markets may already have priced in the improvement, which means the upside for price appreciation may be limited in the near term.