An Uncertain Look

Departments - Nonferrous

January 16, 2012

Two headlines from the same news service during the same day capture the uncertain nature of the nonferrous market. A Bloomberg News headline from Dec. 8, 2011, reads, "Copper May Advance on Production Shortfall Outlook: LME Preview." A second headline from Bloomberg News, roughly one hour later, states, "Copper May Decline on Europe Debt Woes, China Growth Outlook."

The above is not a comment on the news service but on the uncertain nature of nonferrous metal markets. Scrap metal handlers report a growing number of variables—including European sovereign debt problems, a possible slowing Chinese economy, a sluggish construction market, a tepid recovery for the U.S. economy, the upcoming U.S. elections and other macro-economic factors—affecting nonferrous markets. Add to the mix the recent bankruptcy filing by MF Global, and the overall cloud of uncertainty continues to make it difficult to predict short-term markets for many nonferrous scrap metals.

This uncertainty has resulted in scrap metal recyclers taking a cautious approach to business. Yet, some recyclers are expressing modest optimism about nonferrous markets going forward, with some saying they are "cautiously optimistic," "upbeat" and "bullish but careful."

A key reason for the optimism, they say, has been the steady improvement in the domestic transportation sector. Aluminum scrap dealers are benefitting from the improvements in this sector. The auto industry has been gradually improving during the past several quarters. This is translating into better order books for many aluminum smelters, including secondary smelters.

At the same time, concerns about European sovereign debt and the possible cooling down of the Chinese economy could keep a lid on the improvement in aluminum and copper markets, though it is giving the domestic sector some strength.

A large scrap metal recycler on the East Coast says he is optimistic about aluminum scrap markets. "I think the demand for autos in 2012 will be good," he says.

However, he says he sees little in the way of a recovery for the construction industry, which will act as an overall drag on aluminum markets.

The modest recovery in secondary aluminum markets, the East Coast scrap dealer adds, should continue through the first quarter of 2012 at least. This improvement follows a fairly sharp drop in price and demand for most nonferrous metals that began in the fall of 2011.

As a result of strengthening aluminum scrap prices, the dealer says some small yards that supply his facility are building inventory in anticipation of higher aluminum scrap prices in early 2012.

Despite this move by some scrap dealers, another recycler says generation is "not too bad at the present time." Orders are being met and it is not that hard to get material to domestic sources, he adds.

In the Southwest, an aluminum scrap dealer describes the market in that region as "choppy." Despite that, he says his company is not having problems finding homes for the metal. "The aluminum market is slowing a bit. While smelters are a bit unclear now, they are generally optimistic about the direction of the market."

Scrap dealers are more concerned when it comes to copper, though they still appear modestly bullish that the metal will strengthen during the first quarter of 2012. The slowdown in China's economy has created some challenges. Despite this, a copper scrap dealer in the New York area says he expects China to increase its consumption of copper by the end of the first quarter of 2012.

The most recent figures show that China's copper production has slowed toward the end of 2011. According to a Reuters report, China's production of refined copper dropped to its lowest levels in six months in November. According to the report, the decline was in line with China's overall industrial output growth, which hit its slowest pace in more than two years in November as economic conditions deteriorated.

Stainless steel continues to languish. The metal has been affected by the twin problems of the Western European economy and China's oversupply of material currently. Several scrap dealers say they don't see signs of an upturn in the near future.



(More information on nonferrous metal markets, including consuming industry reports and breaking news, is available at www.RecyclingToday.com.)