Following several fairly bleak quarters for nonferrous traders there appears to be a modicum of optimism creeping into the market. Although it is far from the bull market of several years ago, there is a growing sense that incremental improvements in price and demand for most nonferrous scrap metals are in the offing during the next several quarters.
Driving the more optimstic outlook is a mixture of improved macro-economic factors, along with several unique geopolitical issues that could firm up prices in Europe, Asia and North America.
On a macro scale, the biggest impediment for most nonferrous metals has been the negative outlook for the Chinese economy. However, that drumbeat may be dissipating. Sentiment is growing that the Chinese government is taking aggressive steps to strengthen its economy.
Reflecting the notion that China’s government leaders are determined to deploy a stimulus approach to boost the country’s economy, China’s Premier Li Keqiang released a statement on the government’s website in late May saying the government would adjust its economic policy to ensure China’s economy will strengthen.
In the statement, China’s Finance Ministry said some spending has been relatively slow in 2014. However, the Ministry stressed that budgeted funds must reach all local governments by the end of June. Over the first four months of the year, China’s fiscal spending was up 9.6% from the same period a year ago. However, the growth was slower than a year earlier when the spending increased 13.6% year-over-year, data from the Finance Ministry showed.
This is good news for handlers of a range of nonferrous scrap metals who have been struggling with slack demand for many of these metals because of China’s softening economy.
Sellers of copper scrap had some of the biggest challenges. Besides a drop in shipments to China, handlers of the red metals also were dealing with a growing oversupply of finished copper on the market, partly caused by new capacity coming online.
The result was prices for copper scrap falling to levels not seen in several years. However, after bottoming out, copper scrap prices have been strengthening through late May and there is the rekindling of a modestly upbeat mood toward the metal.
Reflecting the improvement, in April the Shanghai Metals Exchange reported that China imported 319,600 tonnes of copper scrap, a modest improvement from the prior month. Despite the increase, several analysts say there continues to be a scrap shortage in the country.
Supporting some optimists that there is less copper available, recent data by the London Metals Exchange shows it has inventories of copper of less than 200,000 tonnes, putting stocks at their lowest level since October 2008.
Nickel pricing and demand also have been rebounding over the past several months. The metal has benefited from an overall improvement in demand for stainless steel, the key end market for nickel. China, which is a significant producer of the metal, has also returned to the nickel-bearing scrap market more aggressively.
Behind the stronger market for nickel and stainless steel scrap has been the decision by the Indonesian government to halt the export of its mined commodities, including nickel. The country passed the policy to spur investments in its internal ore processing infrastructure. The result has been the absence of nickel available on the open market. In the past, China had been a major buyer of nickel ore from Indonesia. However, with the government halting the export of the material, China has shifted its buying to other materials and other regions.
China had purchased a significant amount of nickel ore in advance of the start date of the ban on exports, which began in January. After building up stocks, the country had slowed melting unit purchases as it waited to see if Indonesia would rescind its policy. However, as of late May Indonesia has stuck to the export ban, and China is having to more aggressively re-enter the market with increased purchases of nickel units, including stainless steel scrap.
While in the short term nickel prices may be experiencing some downward pressure, a consensus among analysts is growing that nickel prices should end up strengthening through the rest of 2014.
Aluminium pricing may also be poised to show some fairly robust growth through the second half of 2014. The commodity had been hampered with huge oversupply for much of the past several years, despite significant cuts to capacity made by many top global producers such as Alcoa, Rusal and Norsk Hydro. It had seemed that while cuts in production were being made throughout Europe and North America, new capacity was coming online in the Middle East and China.
Most recently Norsk Hydro announced it would permanently close its idled Australian aluminium smelter. Norsk Hydro also announced plans to build an integrated recycling line for used aluminium beverage cans at its Neuss plant in Germany. The line will be completed by the end of 2015 and will more than double the plant’s existing annual recycling capacity to more than 100,000 tonnes.
More recently, it appears that there is better footing for aluminium. There has been a drawdown in capacity in China, which has eased the oversupply. In fact, while the oversupply had cast a pall on the market over the past several years, there is starting to be some bullish sentiment as the steady increase in global demand for the metal may turn the oversupply of the metal into a shortage, or at least create a far tighter supply and demand situation.