A lull has settled across Europe regarding nonferrous metals. Prices have come off their lows from earlier this summer, though the best to be said is that there is some support at present levels.
In the latter weeks of this summer, prices rallied as some buyers pointed to optimistic economic numbers coming out of Europe. More recent data show that the long slide in the European economy is stabilizing. Granted, a significant amount of work remains to be done before there is wholesale improvement in Europe.
Supporting a moderately improved European economy, a recent report from Bloomberg notes that industrial production in the 17 nations that use the euro gained in June for the fourth month in five, according to European Union data. A composite eurozone purchasing managers’ index rose to 50.4 in July from 48.7 in June, according to data company Markit.
The overall improvement in the auto industry, which is a big consumer of metal, has been one of the positive signs that market optimists point to.
Lending further support to a slowly recovering European economy, the firm Eurostat reports that second quarter gross domestic product for eurozone countries expanded by 0.3% compared with the first quarter, beating economists’ expectations for a 0.2% increase. The improvement follows six consecutive quarters of contraction in the eurozone.
While the overall eurozone economy is improving, countries in southern Europe continue to see difficulty for the next several months. Meanwhile, countries in northern Europe, notably Germany, appear to be showing early signs of economic growth.
Reflecting the improvement, copper prices on the London Metal Exchange (LME) have been gaining over the latter half of this summer, with prices in mid-August at their highest in more than two months.
While Western Europe’s economy is showing signs of improvement, China, the key consumer of copper scrap, continues to show signs of distress, which could cap improvements in European and U.S. copper scrap markets.
According to several market analyses, economists expect to see China’s factory gauge show a preliminary reading of less than 50, which indicates that the Chinese economy is contracting. The country, which was seeing double-digit growth in its economy only several quarters ago, is now struggling to grow at the 7% level.
Despite China’s slower economic growth, Shanghai Metals Market has reported that a recent survey of 24 Chinese copper smelters shows that 53% expect copper prices on the LME to increase to $7,400-$7,500 per tonne.
Aluminium markets also may be nearing a turning point. Despite prices declining to multiyear lows earlier this year, several larger producers say they see some upside, though a significant improvement will take several quarters.
Rusal, the Russia-based aluminium producer, says it expects to see stronger demand for aluminium through 2013, though prices likely will see downward pressure for the next several months. Although prices in mid-August perked up a bit, the overall trend for aluminium has been toward the downside. In a report on its results for the first half of 2013, Rusal says aluminium prices on the LME declined by nearly 8% compared with the first half of 2012.
In response to slumping prices and a quarterly loss, Rusal, the largest aluminium producer in the world, drastically reduced its aluminium output by 1 million tonnes, about 4.5% of its global aluminium production, over the first half of this year. The company’s board has announced plans for further reductions throughout its aluminium production chain.
Rusal is one of many aluminium producers who have announced plans to cut their production.
Alcoa, which announced capacity cuts of 460,000 tonnes in May, will temporarily shutter one of its aluminium smelters in Brazil, removing 124,000 additional tonnes of capacity.
Earlier this year Alcoa permanently closed its Fusina primary aluminium smelter in Italy, reducing its global smelting capacity of 4.2 million tonnes per year by 44,000 tonnes.
Stainless and nickel markets throughout Europe also appear challenging. A recent report from the Germany-based stainless steel service center Damstahl states that while demand for stainless steel during the first quarter of 2013 improved from the prior quarter, it is significantly lower than for the same time in 2012.
The shutdown of Outokumpu’s Krefeld, Germany, melt shop caused a steep decline in stainless steel production this year. Outokumpu also is looking to sell its former Inoxum plant in Terni, Italy.