Nonferrous

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March 24, 2006

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Copper scrap continues its climb, blowing past all historic highs. With prices at record levels, the bullish mood continues. While confident of the underlying strength in the copper market, most recyclers acknowledge that prices have gone too high and that an inevitable retrenching of prices is in store. The question that continues to plague the industry is how sharp the fall will be when prices turn.

Hedge funds are playing a more active role in the market. These financial houses are buying and selling a host of secondary commodities, perhaps separating the metals from the supply and demand realities of the market.

The growing presence of hedge funds in the nonferrous metals markets is also making it more difficult to read the proverbial tea leaves. The volatile swings in nonferrous metal markets, some scrap dealers say, can be attributed to these financial houses, which are said to be driving markets away from the actual physical market to a speculative market.

Domestic secondary smelters say they are finding it more difficult to justify paying ever-increasing prices for the material. At the same time, the offshore market, especially China, continues to show conflicting signals.

For some secondary smelters, an earlier plan to purchase copper scrap is becoming more challenging. One scrap dealer in the Midwest says that domestic smelters are reporting that they have full inventories and are not in need of excess material.

While some industry observers might conclude that some domestic consumers are looking to drive prices down, several handlers of copper scrap note that these consumers aren’t looking to take in more material at lower prices. A slowdown in manufacturing could result in reduced demand for raw material.

Copper scrap is not the only material showing continued strength: Aluminum scrap has been following a similar arc, albeit not as sharp. While prices have been on a strong upswing, some of the fundamentals for the grade are becoming murkier.

The domestic auto industry is casting an ever darkening cloud on the market. The economic problems of General Motors and Ford Motor Co. have created uncertainty about the auto industry in the United States. For many smelters and aluminum scrap consumers, the problems with these two auto giants are resulting in sluggish order books, pushing demand for secondary aluminum down at some of these facilities. Additionally, a number of casting plants in the United States have closed in light of end market concerns.

Along with the problems in the domestic auto industry, a slowdown in home construction also plays into concerns that aluminum scrap could be topping off. However, despite these issues, the overall outlook for the aluminum market still remains strong.

The somewhat bullish outlook for secondary aluminum is not limited to the United States. Several vendors in Europe and Asia say that aluminum, looking forward, should remain fairly healthy.

One U.K.-based scrap dealer says that aluminum, which has been relatively steady for some time, looks to continue to strengthen, as demand in that sector is coming from a number of consumers, including the automotive sector.

"As the market progresses, we see more consolidation within this scrap metal industry worldwide, but obviously hope that the medium and smaller merchants will survive to give the service to their customers and factories that they are so good at," the U.K. recycler says.

With these swings affecting nonferrous markets, many scrap dealers fear that prices could drop quite sharply in a short time. Copper, which has surged far past any historical norm, could decline by 10, 20 or 30 cents, if not more, in a short time and still be priced far higher than it was years ago.

Along with the greater role that hedge funds are playing, China continues to be very active in the secondary copper market. As a result of this activity, copper scrap is becoming harder to get a hold of, and scrap recyclers are working harder than ever to collect, process and ship material.

While markets have softened a bit for copper, some exporters note that much of the decline was related to the brief lull that typically accompanies Chinese New Year. However, now Chinese buying is back in the market, which should keep prices up at fairly high levels.

However, many of these handlers also are quick to add that no one really knows where the market is going. They say it is best if recyclers cover themselves by keeping material moving to avoid getting caught when the market does turn.

While the short term expectations are that most nonferrous metals should still move at a decent clip, looking further out, some market observers see a potential sharp correction by the end of this year or early next year.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available at www.RecyclingToday.com.)

FILIPINO ALUMINUM SHEET PLANT SOLD

Reports published in news outlets in the Philippines have stated that Reynolds Philippines Corp., a foreclosed aluminum sheet plant, has been sold to a Shanghai-based scrap recycling company for around $7 million.

The sale was made by the company’s creditors, which include Land Bank of the Philippines, Metropolitan Bank and Trust Co., RCBC Savings Bank and AsiaTrust Development Bank. It reportedly includes the Reynolds building and equipment from the plant, which is near Manila.

According to the reports, some of the equipment will be shipped to Shanghai for use, while some will be sold as scrap metal.

Reynolds Philippines Corp. formerly made and distributed aluminum sheets, foil and extruded sections used in the packaging, container, construction, appliance and vehicle manufacturing sectors.

ALCAN ACQUIRES MEXICAN FACILITY

Alcan Inc. announced that Alcan Packaging Mexico has acquired the packaging assets and business of Recubrimientos y Laminaciones de Papel of Monterrey, Mexico. The asset purchase includes a plant in Monterrey.

"Alcan Packaging is strategically committed to realigning its portfolio globally toward growing and attractive market segments. The Monterrey site will provide an expanded manufacturing platform to accelerate Alcan’s food and specialty flexible packaging growth in the Mexican domestic market," Christel Bories, president and CEO of Alcan Packaging, says.

"This acquisition in Northern Mexico is an excellent strategic fit, allowing us to better serve both Mexican and U.S. customers," Ilene Gordon, president of Alcan Packaging Food Americas, says. "In addition to growing our business in the region, this also brings an experienced manufacturing workforce and strong customer relationships."

With this acquisition, Alcan Packaging Mexico will have three flexible packaging sites, including plants in Tlaquepaque (Jalisco) and Zacapu (Michoacan).

ALCOA INKS DEAL TO BUILD SMELTER

Alcoa has signed an agreement in principle with the government of the Republic of Trinidad and Tobago to build a 341,000 metric-tons-per-year aluminum smelter in Southwestern Trinidad.

The agreement follows the signing of a Memorandum of Understanding in May 2004 that states that Alcoa would participate in the development of an aluminum industry in Trinidad and Tobago.

It is anticipated that Alcoa would build the aluminum smelter, an associated anode plant and cast house. Project plans call for the production of 240,000 million tons per year of billet and forging stock and also includes possible downstream facilities. The facilities would be powered by a self-contained power plant fueled by natural gas. The new smelter and related facilities are projected to cost approximately $1.5 billion.

STUDY QUESTIONS COPPER SUPPLY

A scientific journal article is proposing that if undeveloped nations begin increasing their use of copper wiring and tubing, even the full extraction of the Earth’s ores and increased recycling may not be enough to meet future demand.

According to a report from the LiveScience.com Web site, the article’s authors considered metal supply thought to exist as ore and metal in use by people today on the supply side and "an estimate what the global demand for copper and other metals would be if all nations were fully developed and using modern technologies" on the demand side.

The study finds that all of the copper in ore plus all of the copper currently in use that could be recycled will be needed "to bring the entire world to the level of the developed nations for power transmission, construction and other services and products that depend on the metal."

Thomas Graedel of Yale University led the study, which was presented in a January issue of Proceedings of the National Academy of Sciences journal.

VISTA METALS BUYS CASTING PLANT

Secondary aluminum producer Vista Metals Corp., Fontana, Calif., has purchased cast plate production equipment that was formerly used by Pechiney Cast Plate in Vernon, Calif.

The company will use the equipment to produce cast plate products at its Fontana facility.

"This acquisition is a logical progression, especially since we have supplied the slab to the mold plate manufacturers for over 18 years," Vista Metals President Andrew Primack says. "We are excited and fully committed to fully integrate our cast plate products, both mold and precision tool and jig, into the marketplace," he adds.

Vista makes press extrusion billet in hard and soft alloys and makes rounds for the forging industry and slabs for the mold plate and rolling industry.