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Volatility all around

Copper and aluminum pricing has been volatile following Russia's invasion of Ukraine, but not on par with the volatility seen in nickel.

March 20, 2022

Russia’s invasion of Ukraine Feb. 24 has led to volatility in the nonferrous markets, particularly for nickel. The London Metal Exchange suspended trading of the metal from March 8 through March 15, with LME CEO Matthew Chamberlain citing “further unprecedented overnight increases in the three-month nickel price” for the decision.

Nickel rose from $48,078 per metric ton March 7 to more than $100,000 per metric ton March 8 because Chinese company Tsingsang Group moved to reduce its short position of nearly 100,000 metric tons of the metal over a few hours, according to Davis Index, which cites suggestions in media reports.

March 15, when the LME announced that its nickel contracts would resume trading at 8 a.m. London time March 16, it also said it would be applying daily upper and lower price limits of 8 percent, which it increased to 12 percent March 17, to those contracts as well as to “all outright contracts in all base metals.” It also deferred delivery to March 23 for all nickel contracts entered into before March 16.

For other based metals contracts, which included aluminum and copper, the LME established a 15 percent upper and lower daily limit.

Copper and aluminum also reached new highs during LME trading March 8. According to Agence France-Presse (AFP), aluminum reached $4,026 per metric ton ($1.83 per pound), which marked “the first time the lightweight metal had breached $4,000.” AFP says copper also hit a new record, reaching $10,845 per metric ton ($4.92 per pound).

In the U.S. copper scrap sector, Brian Shine, CEO of Manitoba Corp., Lancaster, New York, says, “It is interesting because in some respects, nothing is going on, and, in other respects, a lot is going on.”

The wild fluctuations in the market are not producing the types of responses they normally would, he adds. “Shockingly, when we see the big market increases, we are not being offered a lot of metal,” Shine says. “That is normally what happens.” Consuming customers also are not calling for more metal when the price recedes. “We are not seeing those market-driven responses in supply and demand,” he says. “When people need metal, they call you regardless of whether the market is up or down.”

Historically, Shine says, a movement of a penny or two up or down would compel scrap sellers and buyers to action. But, for the last six to eight months, he says, movements of 10 cents aren’t spurring action. Instead, Shine says he believes consumers are reacting to their book of business, while yards are moving their loads once they are built for cash flow and market-related reasons.

Despite the current uncertainty introduced by the war in Ukraine, Shine says sentiment in the copper market remains bullish given the infrastructure investments and new opportunities created by increased production of electric vehicles and the transition to green energy. Additionally, he says the situation is adding momentum to a trend that emerged earlier in the pandemic of reshoring manufacturing activity.  “Some of our customers or our customers’ customers have seen improved orders in North America because they cannot get metal out of Russia.”

Presently, however, Shine says scrap generation still has not returned to pre-COVID levels, and scrap processors are seeing transportation and personnel costs increase, which are affecting margins.

Chad Kripke, president of the Toledo, Ohio-based brokerage firm Kripke Enterprises Inc., says aluminum is in tight supply, with a deficit having been projected in LME stocks for the year. It could get tighter if smelters in Europe must curtail production because of energy-related issues, which have been made even more pronounced by sanctions on Russian oil and natural gas. “There is a legitimacy for prices to remain at this level or higher, especially as smelters’ capacity constraints continue.”

Kripke adds, “The extreme volatility in the traded price of primary aluminum has led to a wide range of prices for items that track with the LME. Prices and spreads for the same items are all over the board as buyers try to reestablish proper values for these grades of scrap.”