Nonferrous Metals on the Floor

Hope for an end-of-year rally seems to have dissipated as listless markets for a range of nonferrous metals have kept a lid on prices.

November 15, 2012
RTGE Staff

Hope for an end-of-year rally seems to have dissipated as listless markets for a range of nonferrous metals have kept a lid on prices. The lack of strength in nonferrous metals markets is primarily because of the sharp slowdown in orders from China.

As difficult as the market may appear, a growing consensus among metals industry observers is that prices have started to stabilize and that price and demand may improve moderately during the next several months.

Over the past several months, reports have indicated that the Chinese economy continues to slow. According to recent reports, the Chinese economy may be growing at a 7.5% rate. While that growth would be the envy of many developed countries throughout Europe, China’s economy has grown at double-digit rates for the past number of years.

For processors of nonferrous scrap, the slowdown has hurt, as many of them have relied heavily on China as a consumer of their processed material.

On the positive side, China is sticking its toe back in the scrap metal market. More recently, the Chinese government has signaled that it is willing to start up some large infrastructure projects, which could benefit demand for a range of nonferrous metals.

A report by Bloomberg notes that manufacturing activity in China has stirred optimism that copper scrap demand could increase. Additionally, an uptick in new housing starts in the U.S. may indicate a slow but steady improvement in the economies in these two countries.

However, the further deterioration of the European market continues to tug at copper and aluminium markets. The Bloomberg report says the euro continues to decline in value and manufacturing in Europe continues to show little sign of short-term improvement.

The result has been a steady decline in copper futures, though signs point to some stabilizing in the copper market.

Supporting a mildly bullish outlook, a recent report by the large Europe-based copper producer Aurubis says many market observers expect a modest copper production deficit in 2012. This will likely keep a floor on copper scrap prices and help them to resist unfavorable macroeconomic trends.

According to Aurubis, the production deficit has been caused by a number of factors, including technical disruptions, maintenance standstills and strikes.

Recognizing the overarching role that China plays in the market, the steps the Chinese government has taken recently should help revive copper markets by the end of the year, according to sources. Because China accounts for approximately 40% of global copper demand, what that country does will have the greatest impact on copper markets.

The automotive sector has proven to be quite robust up to now, especially the premium vehicle segment, where the use of copper is high. The enameled wire industry in the southern parts of Europe will stay under pressure, but some other manufacturers in Northern Europe expect at least stable development after the typical seasonal slowdown in August, according to the report from Aurubis.

The demand outlook for rolled products is characterized by a stable trend in Germany and northern Europe, while weak market conditions are expected to continue in southern Europe in the short term. Asian markets remain mixed, and demand may slow down in North America.

All in all, Aurubis says it expects to see a slight increase in demand for copper products after the seasonally weaker summer months.

Aluminium markets, which saw some positive price movement earlier this fall, could be in for a bumpy ride in the near future, according to sources. Despite higher prices for the metal, an oversupply of finished material will likely keep a cap on steady price increases. Even with the sizable capacity cuts that have occurred during the past several quarters, depending on who you talk to, there are anywhere from several hundred thousand tons to more than 1 million tons of excess finished aluminium on the market.

Several large projects that will consume aluminium scrap are slated to begin production within the next several years, which should be good news for the secondary aluminium market. Novelis recently opened a large aluminium recycling facility in South Korea that could consume a significant amount of excess raw material capacity on the market.

The South Korea project is Novelis’ first major step in its plan to increase its recycling capacity to 2.1 million tons by 2015. The new plant will have an annual capacity of 265,000 tons and will increase the company’s total recycled aluminium consumption to more than 1.4 million tons per year.

Novelis also has a number of other sizable recycling expansions underway in Brazil and Germany, along with additional investments in recycled production capacity worldwide. The company recently announced a $250 million investment in Germany to build what it describes as the largest aluminium recycling plant in the world. Novelis also plans to double its recycling capacity in Brazil.