August 18, 2009


Nonferrous metals have been holding on to most of the gains they saw during the past several months. Toward the middle of July, modest declines occurred, though overall prices are fairly strong compared to earlier in the year.

Several months ago analysts were concerned that a sharp rise in commodity prices would result in significant retrenching. However, moving into August, any decrease in pricing has been modest at best. Copper, nickel, tin and even aluminum pricing appear to be trending upward.

While prices for nonferrous metals remain on the upside, the concern continues that much of the strength is because of speculative or hopeful outlooks. New housing starts for June were better than expected, and this news helped to buoy some speculators. Any strength in the housing sector will have a positive effect on copper demand.

Along with better-than-expected new housing starts, China continues to play a substantial role in buying much of the nonferrous metal available on the market.

A third factor that has helped boost some nonferrous metals has been the weaker U.S. dollar, which is making nonferrous scrap more desirable as an export commodity.

Meanwhile, despite the optimism coming from different sectors, many nonferrous producers continue to cut production. This is most notable with aluminum, which, despite a recent run in price, has been struggling with demand. Part of the reason has been the decline in demand for durable goods, especially automobiles. A number of manufacturing facilities that are key suppliers to the auto industry have shuttered their doors or filed for bankruptcy protection.

Along with large aluminum producers continuing to cut production, inventories of the metal have climbed to what Bloomberg notes is a record high of 4.5 million metric tons.

Stocks of other nonferrous metals have been inching upward as well. One report notes that copper stocks at the London Metal Exchange warehouses have increased again. However, even with this increase, LME copper stocks are only slightly greater than half the level they were this past spring.

With China signaling that it may ease back on its purchases, prices could see some resistance going forward until there are clearer signs of an improving economy outside of China.

Nickel production in China showed a modest decline for June, following a sharp increase of close to 25 percent in May. Chinese nickel demand is showing signs of softening, which is causing more material to be warehoused. There is a growing sense that much of the recent strength in the nonferrous metal market is being driven by Chinese activity.

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