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Market Reports - Nonferrous

Nonferrous metals markets show signs of improvement.

RTGE Staff January 13, 2014

After what seems to have been an endless drumbeat of bad news over the past year, nonferrous metals may be starting to see the beginning of a turnaround in market conditions.

While any recovery is only very tentative right now, the economic outlook in Europe seems to be clearing a bit, and there may be some better pricing and modestly stronger demand in 2014.

Lending credence to this optimism have been recent reports from Europe that note manufacturing activity on the continent finally starting to improve. For example, Germany, a key market for Europe’s economy, reported manufacturing activity that hit a multi-year high.

Any sustained economic recovery could help boost demand for the scrap as well as improve the end markets for the metals on the continent.

Supporting this optimism, a recent report from the research firm Markit Economics shows that the Eurozone PMI (purchasing managers’ index) rose to 52.1 in December 2013, up from 51.7 in November. The upturn brings the rate of growth close to the 27-month peak seen in September and marks a reversal of the easing in the rate of growth seen over the prior two months.

One of the biggest beneficiaries of an improved European economy is copper, including copper scrap. After seeing prices beaten down over the past year, in late 2013 there were signs of a modest rally in the copper markets. Adding to the moderately upbeat outlook for copper has been the decline in copper inventories.
 


Adding to the optimism in Europe, Markit Economics adds that growth of new orders also accelerated, showing the biggest jump in demand for goods and services since June 2011.

Manufacturing led the upturn, with output rising for the sixth successive month and the rate of increase hitting the highest level since April 2011. New orders to goods producers likewise rose for a sixth month, also showing the fastest expansion since April 2011. Rising exports fueled order book growth, which continued to run at its fastest clip since early 2011.

As promising as the European economy has been for copper, a downside to markets at present is purchasing activity from China. While Europe is showing some upside, China, the largest consumer of copper and copper scrap, is seeing a slowdown. According to a Reuters report, growth in China’s factory sector slowed to a three-month low in December 2013 as reduced output offset a pickup in new orders.

The report adds that China also is bracing to pay higher premiums to procure metal in 2014 as global exchange stocks slump.

Meanwhile, the economies of different European countries present mixed signals. For instance, while Germany is starting to gain economic strength, one report notes that in France the rate of private sector activity shows significant deceleration.

Reflecting the opinion that while the European economy is recovering, though still not fully recovered, the unemployment rate continues to struggle. However, the decline in employment is starting to ease up and stabilize.

Supporting a modest improvement in metals markets in Europe, Arubis, one of the largest copper recyclers in Europe, also expresses confidence that 2014 markets for red metals will be better. In its annual statement, Arubis notes, “We anticipate a good market situation for copper concentrates, which are especially important for us, and therefore a good supply and strongly improved treatment and refining charges,” Arubis notes in its management report.

The report adds, “We are less confident when it comes to copper scrap and sulfuric acid markets: A more favorable market situation for sulfuric acid is not foreseeable for the time being, and while we expect an improvement in the market environment for copper scrap markets, we aren’t sure when this will take hold. The availability of complex recycling raw materials may rise with an increase in activity in the processing industry.

“The global copper market will likely be characterized by good demand for cathodes for much of 2014. The copper price is well supported from the current perspective. Many developments show that it has upward potential, though the trend will be volatile overall,” Arubis concludes.

Aluminium may be one metal that will not see much growth in pricing in the year ahead. Despite steady growth in aluminium demand, the vast oversupply of metal on the market is keeping a lid on prices. Depending on the view of the analyst contacted, as much as half of all the aluminium being produced currently in being made at a loss. Even with significant cuts to capacity taking place throughout North America and Europe, China’s sharp increase in aluminium capacity will continue to result in an oversupply situation.
 


Along with China, new aluminium capacity is popping up throughout the Middle East because of fairly low energy costs. In fact, Oman Aluminium Rolling Co., based in Oman, just opened a new aluminium manufacturing facility in Sohar which will continue to put pressure on aluminium producers, particularly high-cost producers in Europe.

Despite the challenges for aluminium, there are some positives. Pockets of strength can be seen in the European auto industry, with one report saying automakers in Germany are in fairly good shape.

Nickel and stainless scrap, which have decline quite a bit in price over the past year, have been finding some balance at fairly low prices in recent weeks. A report from Oryx Stainless notes that following October when nickel prices climbed, November prices saw sharp corrections, with prices toward the end of the month hitting lows seen in July.

At that level, Oryx notes that the market is supported by the cost curve of production. However, “around 50% of nickel producers cannot even recoup their cash effective costs in nickel production. For months now, nickel prices have been in a tug of war between low capacity utilization by consumers and an abundant supply of primary nickel.”

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