Slow Speed Ahead

May 8, 2013
RTGE Staff

Moving into late spring there doesn’t appear to be much on the positive side for nonferrous metals in most regions of the world. European scrap metal recyclers appear to be feeling the biggest crunch at the present time as slow economies continue to grind away in many countries. Prices for most types of nonferrous scrap have declined, in some cases quite sharply. Meanwhile, generation of new material continues to be hard to come by.

Global copper prices continue to remain listless at best, with April prices down to levels last seen around 18 month ago. The slump in the metal shows very little sign of abetting as end markets continue to be problematic.

As challenging as the European economies are, it could become even more difficult. Recently, a growing number of economists have been saying that the overall European economy could be entering into a depression. One report notes that the gross domestic product for the euro zone is expected to show a contraction for the first quarter of 2013, meaning six consecutive quarters of economic contraction.

Supporting the less-than-upbeat economic outlook, the International Monetary Fund (IMF) says the euro zone will likely be the weakest part of the global economy for the near term. The comments were made during the IMF’s twice annual World Economic Outlook.

Adding to the overall bleak figures, the IMF points out that European sluggishness could expand into other countries, not just in neighboring countries but also countries that do a significant amount of business with Europe.

The IMF, in its report, notes that aluminium prices have remained relatively low during the past decade because of large investments in aluminium smelters in China and the Middle East. Another factor has been a slowdown in manufacturing, which translates into a general reduction in the generation of supply from sources throughout Europe.

One data point that reflects the problems in Europe is the March automobile sales demand on the continent, which dropped by 10.3%, according to the European Automobile Manufacturers’ Association. The drop is the 18th straight month of auto sales decline, the association reports.

For the nonferrous sector, the slump directly affects end markets for metals such as copper and aluminium, which make up a growing percentage of new automobiles.

Scrap metal recyclers throughout Western Europe report challenging markets for most nonferrous grades of scrap. With less material being generated, several sources say that margin compression is making it difficult for some recyclers to handle material.

Reflecting the changes in nonferrous metals, many consumers of nonferrous metal in Germany are adjusting their purchase patterns from long-term contracts to much shorter durations as manufacturers in the country attempt to ride out the difficult economy.

If the problems with lack of generation aren’t causing enough difficulty, the well-publicized slowdowns in some Asian markets are causing additional stress for many European recyclers.

China, a significant consumer of most metals, including copper and aluminium, appears to be showing more signs of a slowing economy. More financial institutions are lowering growth prospects for the country, which would result in a slowdown in manufacturing and, ultimately, demand for scrap metal to feed smelters and refiners. In April, Moody’s Investors Service recently cut its outlook for China from positive to stable.

With China consuming around 40% of the world’s copper, a decline in China’s economy will likely help keep copper scrap prices trending downward.

In a presentation given at the ISRI National Convention, Bob Stein with Alter Trading, a large scrap metal recycling firm based in the United States, says it is likely that China’s thirst for copper scrap “has reached its zenith.”

While saying that in the future China will play a role in the copper scrap market, “as a market option for us it will decline over time to the point where it will join other importers as a mature and steady customer for us,” Stein added.

The IMF report notes that going forward, growth in China’s metal demand is expected to moderate as the economy moves more toward services and away from manufacturing.

China still has plans for large infrastructure projects, which will lead to upside risks to prices. Reliance on metal futures prices, however, is not without important caveats—their predictive ability appears to have declined.

In the short term, however, China’s tightened import policies are making it more difficult to ship containers of some grades of nonferrous scrap, especially mixed loads of nonferrous scrap.

For companies looking to ship electric motors or some types of wire, especially those containing lead, it is even more of an obstacle to move the material.

India, another sizable buyer of nonferrous scrap metal, also has reduced its imports of scrap from Europe as the country tightens its fiscal reports ahead of the financial end of the year.

Supporting the murky outlook for copper, a recent report by the Wall Street Journal notes that copper for April delivery dropped to the lowest level in more than 18 months.

Scrap metal recyclers in Northern Europe are in one of the few areas that are seeing some positive movement. While margins aren’t huge, reports from the region have pegged Nordic countries as being able to move most of the nonferrous scrap they are handling.

In a recent market report by the Bureau of International Recycling, one commentator notes that demand for many metals will improve as the European economy improves. The problem is how long it will be until there is any sign that the extended contraction that has driven down markets throughout Europe is ending.