Searching for Strength

June 27, 2013
RTGE Staff

The summer doesn’t look like the time when nonferrous markets will see a return to health. Any rebound in price and demand likely will not take place until closer to the end of the 2013 in most parts of the world.

Prices have on occasion modestly swung upward over the past several months, though the overall trend is toward the downside through the spring and into early summer. Several commentators say the nonferrous market is most definitely on the bearish end of the spectrum presently.

The sentiment was hammered home during the recently concluded Bureau of International Recycling (BIR) World Recycling Convention, held in Shanghai in late May.

In a presentation on the state of the stainless steel market Markus Moll, managing director of Austria-based Steel & Metals Market Research (SMR), noted that, in general, stainless steel consumption will double in 2013 to 4% (1.23 million tonnes), after increasing by just 2% the prior year.

Despite this growth in production, the overall health in the stainless steel sector varies significantly. China is expected to see stainless steel consumption grow by 7%, while Europe will continue to struggle. A 1% decline in stainless steel consumption is expected in Europe in 2013. Despite the decline, the figure is an improvement from the prior year, when Europe saw stainless steel consumption fall by 4%.

Adding to the desultory outlook for stainless steel throughout Europe is competition between stainless steel producers for orders. As a result of this competition, stainless steel producers are unable to hold price increases this year, which is ultimately shrinking margins throughout the supply chain.

Looking into the future, Moll did offer optimism. “An expected slow improvement in the global market will have a positive impact on the European market after the summer holiday period,” he said. Moll added that 2014 is considered to be a turning point for the stainless steel sector, with a return to better growth based on rising project activity around the globe.

Aluminium markets also are in the midst of significant upheaval. Aluminium is in overcapacity on the global market. Closures of potlines and smelters have been announced throughout the world, with the general consensus that further cuts are going to be needed to bring supply and demand back into balance.

Supporting this outlook, a recent report from the China Nonferrous Metals Industry Association (CNIA) notes that while aluminium capacity in China was 78% in April, the highest level since 2008, aluminium prices in the country have been below production costs since August 2011. The result is 93% of aluminium smelters in the country are operating at a loss.

Prices for aluminium on the London Metal Exchange have been steadily declining. Early this year, aluminium pricing topped $2,150 per tonne. In mid-May, aluminium was being sold for roughly $1,830 per tonne.

Adding to the challenges for aluminium scrap, as well as for a host of other nonferrous metals, is the increased charges for shipping material into Asian countries. During the BIR conference in Shanghai, Bob Stein, president of BIR’s Nonferrous Division, noted that the Indian government has raised the customs duty on aluminium scrap from 0% to 2.5% and reimposed the 4% special additional customs duty on brass scrap imports.

Global copper markets also have seen steady downward pressure, despite a number of incidents that have helped change the supply dynamic for the metal. In the most recent case, an accident at a large copper mine in Indonesia killed a number of employees and shut down mining operations at the site. The accident has cut into copper supply, which has given some traders the opportunity to see a short uptick in price.

While the shutdown of the mine likely will help balance supply and demand, in the longer term markets for copper scrap will be driven by the role of China, the largest consumer of copper scrap, in the market. Although the Chinese economy continues to grow, it has slowed from earlier double-digit rates, resulting in a reduction in the demand for new copper scrap.

At the same time, China’s Operation Green Fence is having an impact on the flow of material into the country. Several U.S. firms that export copper scrap to China say mixed loads of metals are coming under greater scrutiny by Chinese customs officials, and many recyclers say they are shifting shipments to other countries.