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Market Reports - Nonferrous

RTGE Staff April 28, 2014

It may not be a return to the soaring scrap metal markets of the pre-2008 recession, but a host of scrap metals processors are seeing signs of stabilization and improvement over the next several quarters.

For the European-based metals recycling industry, the optimism is a bit guarded, although there is a growing sense that the recession, which has dragged on for the past five years looks to be easing.

Unlike other regions of the world that have shown far more robust acceleration, European economies, for the most part, are only showing modestly improved figures, so any recovery can be seen as fragile. Still, it appears that most nonferrous grades are starting to firm up a bit throughout the continent.

Despite the fragility of the market, there are enough indicators that more nonferrous metals are poised for better pricing over the next several months.

Aluminium, more than most metals, has seen struggles resulting from the steep oversupply of finished product on the market. And, even with a fairly healthy increase in global aluminium demand, the steep oversupply of the metal on the global market has worked to suppress any price gains. In fact, through the end of 2013 and early 2014, aluminium prices had fallen to multi-year lows. However, after significant capacity cuts in global capacity by some of the largest aluminium producers, several analysts are forecasting a shortage of aluminium on the global market by 2015.
 


 

While many of the top aluminium producers, including Alcoa, Rusal, Norsk and Rio Tinto, have been cutting capacity throughout their global networks, a complaint has been the role that China has played in maintaining the oversupply of aluminium on the market. However, with potential problems looming with China’s economy, the Chinese government has been taking steps to drive some of the marginal capacity out of the market, which could be the impetus to better pricing during the second half of 2014 and into next year.

For scrap metal recyclers, the sluggish economy also resulted in a scarcity in the availability of scrap. With the exception of the auto industry, the manufacturing sector throughout Europe has been fairly anemic over the past several years, which has resulted in less industrial aluminium scrap being generated.

The nickel and stainless steel market also is showing some positives, although for different reasons. Indonesia, a key supplier of nickel pig iron (as well as other metals), has banned the export of the metal. A number of consumers of nickel pig iron had been skeptical that the ban would be enforced or maintained. However, as of April the ban remains in effect, and consumers are adapting to ensure they have adequate material, whether scrap or primary, to make their finished product.

China, a large consumer of nickel pig iron, has built up a large inventory of the metal in anticipation of the curtailment. However, once Chinese consumers work off this inventory they may have to re-enter the scrap market to replenish stocks.

The European stainless scrap market also could benefit from some strengthening out of the United States. With the opening of new capacity in Alabama, several speakers at the recently concluded Institute of Scrap Recycling Industries Inc. (ISRI) 2014 Annual Convention, held in Las Vegas, noted there could be more stainless scrap being collected and processed in Europe that will be shipped to the U.S. to meet new demand.

While the U.S. stainless steel market may see improvements, producers in other regions of the world may not. Problem spots include China and Europe, which both are struggling with too much capacity and a slowdown in demand. “The United States will become a net importer of stainless scrap from Europe,” one commentator at the ISRI convention predicted.
 


Reflecting the more positive outlook for stainless steel, Outokumpu, one of the largest stainless steel producers in the world, says it is seeing a modest improvement in underlying market demand for the metal, while higher delivery volumes and some improvement in base prices have helped firm up the markets. The improved stainless steel market for this year follows a 2% decline in stainless steel production in Europe in 2013. For 2014, stainless steel output in Europe is forecast to increase by 3%. North American stainless steel output increased by 2% in 2013 and is slated to increase by 5% in 2014. And the Asian market, primarily China, saw stainless demand increase by 8% last year, although it appears to be slated to soften a bit in 2014, with demand increasing by 6%. Global real demand for stainless steel in 2013 increased by 6% and is forecast to increase by 5% in 2014.

Although Outokumpu, in its recent market analysis, reflects some optimism, the company also will be shifting its production as it continues to shutter capacity in Europe and focus more of its efforts on the newly opened stainless steel operation in Alabama.

Copper and copper scrap continue to be among the most volatile nonferrous metals. The red metal, for the most part, is beholden to the Chinese economy as the end market driver.

Although there are concerns about short-term conditions for the metal, it appears that prices are starting to stabilize. At the same time, one bullish indicator has been the shrinking inventory of copper stocks on the London Metals Exchange. One source says the inventory level has declined by close to 30% so far in 2014.

The biggest concern seems to be the economic health of China, the traditionally dominant consumer. While some industry insiders fear sharply reduced demand, others say a centralized approach may allow China’s government to maneuver and smooth out the rough patch.

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