Bottoms Up

October 30, 2013
RTGE Staff

As challenging as the nonferrous markets have been over the past several years, the sector may have finally reached a balancing point. The main factor is that economies in many European countries are starting to improve.

Recent reports indicate that after sharp declines through most of the past several years, the economies of many European countries seem to have turned the corner and are no longer contracting. The improvement is only modest presently, though the signals are far better now than they were several quarters ago.

Even optimistic individuals say the economic recovery in these countries is still fragile and the economies could slip back down, depending on a range of geopolitical issues.

With signs of a turnaround in the European economies, a number of nonferrous metals, including copper and aluminium, are starting to show modest strengthening.

Supporting the notion that European markets are starting to stabilize, during the recent Institute of Scrap Recycling Industries Inc. (ISRI) 2013 Commodities Roundtable Forum in Chicago, Marcus Kartenbeck, with Hamburg, Germany-based copper producer and scrap recycler Aurubis, said that while the European economy has struggled greatly over the past several years, signs of a modest improvement in the continent’s economy are visible.

In remarks at the ISRI Commodities Roundtable Forum, held in September, Kartenbeck noted that after a number of years of challenging markets and tough economic conditions, Western Europe’s collective economy is starting to perk up, though modestly.

Part of the strength in nonferrous metals has been the need by many consumers to restock inventories. One report notes that some nonferrous consumers, especially those located in southern Europe, have let their inventory levels decline in recent months and years and as a result they are now having to re-enter the market to rebuild those inventory levels.

Adding to the positive outlook for copper, Chile’s Codelco, one of the largest copper producers in the world, has announced plans to hike its 2014 European copper premiums to $112 per tonne, a more than 30% increase from 2013’s premium. According to Reuters, the hike further indicates that there is a recovery in copper markets throughout Europe.

The copper mining company also is looking to pass on higher premiums to consumers in China.

Copper also has seen a modest upswing in demand, according to the consulting firm CRU Group, headquartered in London. The group says demand is increasing by 1% during the third quarter and forecasts a 2% increase for the fourth quarter to 935,000 tons.

Aluminium, which has been saddled with massive oversupply, has seen demand improve. According to the CRU Group, demand for aluminium in Europe increased by 1.3% to 2.1 million tons during the third quarter of 2013 and is expected to increase by 1% during the fourth quarter to 1.9 million tons.

The modest improvement in copper and aluminium, however, is sharply better than the fairly sharp decline seen for the European demand for aluminium and copper seen over the past few years. CRU’s report notes that in 2012 aluminium consumption dropped 3.8% while copper demand on the continent dropped by 4%.

Stainless steel scrap also is expected to show an improved situation going forward. Marcus Moll, an analyst with the Austrian-based research firm Steel & Metals Market Research, says he expects global stainless steel markets to increase by around 3% in 2013 and by 4% in 2014. Leading the way will be China and Africa, which should both move up by around 7%, and North and South America, increasing by 5%.

In his remarks, Moll highlighted the fact that China has moved from being a marginal player in the stainless steel market to a country that is home to a majority of the largest stainless steel producers in the world. He adds that for this year China will account for around 43% of the global stainless steel produced and about 41% of the stainless steel consumed.

End markets for many nonferrous metals, however, are still challenged by macro-economic concerns. India, which traditionally has been a steady buyer of a range of metals, has seen its rupee decline in value, resulting in a sharp drop in scrap metal imports.

Along with other issues, a number of countries have been imposing various regulatory policies that would prevent the export of a range of commodities from their home countries to other sources. As mentioned at the recently concluded ISRI event, South Africa is considering policies that would require any scrap metal dealer in the country to sell scrap metal to domestic sources at 20% less than international prices.

Over recent weeks in Germany, scrap prices have increased slightly in response to gains in the London Metal Exchange, but supply has shown only a minor improvement. Business volumes have declined by 20% to 30% for many companies since the beginning of the year, with larger firms in particular suffering the effects of high costs of finance and labor.

According to the Bureau of International Recycling’s World Mirror publication, nonferrous scrap is described as very tight in Brazil and not abundant in Mexico despite the recent rebound in LME values. That said, a combination of the summer season and the economic slowdown at home and in other emerging markets has led to a reduction in consumers’ appetite for scrap in Mexico.

In other news, it is reported that the Mexican government is likely to introduce a tax reform proposal that could have a significant impact on the trade.

Similarly, the metallurgical industry lobby in Russia is calling for the removal of import value-added tax for scrap metals.