Uncertainty Ahead

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The bumpy ride many nonferrous metals have been taking is expected to continue for the foreseeable future, according to a number of speakers during the Institute of Scrap Recycling Industries (ISRI) 2012 Convention and Exposition in Las Vegas April 15 to 19. While price and demand for many nonferrous metals were holding up, a number of sources described the near-term future of the market as uncertain.

A growing number of nonferrous recyclers said they had become more cautious with offshore shipments, choosing to conduct business only with companies with which they had well-established relationships. Other exporters said they were requesting larger up-front payments from overseas buyers before shipping material.

Copper continues to hold the most uncertainty among nonferrous scrap metals, many dealers said. During the conference’s Spotlight on Copper, April 18, one speaker who processes and consumes copper scrap said long-term market visibility was basically nonexistent. Tim Strelitz, president of Los Angeles-based California Metal-X, said, “It is so foggy out there, we can’t predict anything.”

Economic conditions in China are contributing to this uncertainty. While acknowledging that long-term demand for copper scrap should be good, several attendees said market conditions likely would be more volatile during the next several quarters, with an overall downward bias in pricing.

Also speaking at the Spotlight on Copper during the ISRI 2012 Conference and Exposition was Ed Meir, a consultant with INTL-FCStone, headquartered in New York City. Meir said conditions in China, which accounts for nearly 40 percent of copper consumption worldwide by some estimates, were worrisome. “China will not drive metal markets this year.”

Meir added that copper scrap imports to China have fallen this year when compared with 2011.

A number of analysts predict that growth in Chinese copper demand will slow this year. Barclays forecasts 5 percent growth in 2012, a decline of 4.5 percentage points from 2011’s 9.5 percent growth rate.

The lower volumes so far in 2012 follow China’s import of nearly 447,000 tons of copper scrap in December, a 2.7 percent increase relative to December 2010.

More recently, The Wall Street Journal reports that copper futures fell to their lowest levels in three months April 23 as weak economic data from China and the euro zone meet demand expectations for the base metal.

While uncertainty about China likely will linger for the next six months to a year, several other sources said they were having no problems selling copper scrap right now, though markets are not as robust as they were last year.

While offshore demand, notably to China, is down, attendees said they were looking to the U.S. market as a possible source of new demand. The start up of a new secondary copper smelting facility in Fort Wayne, Ind., known as SDI La Farga LLC, is imminent and could improve copper scrap demand in the domestic market.

In terms of aluminum scrap markets, a speaker at the Spotlight on Aluminum said the automotive industry held much promise.

Citing a report from Ducker Worldwide, Mike Southwood, a senior consultant with CRU, based in Pittsburgh, said engine blocks, closures, bumpers, steering knuckles, differentials carriers, powertrain mounts and instrument panel structures are expected to set all-time aluminum content records in 2012.

He added that North American automotive production is expected to grow in the next four years, as is aluminum content per vehicle, resulting in a 40 percent increase in automotive aluminum demand from 2012 to 2016.

Southwood predicted China’s appetite for aluminum scrap from the U.S. will not decrease for years to come, despite efforts to become more self-sufficient.

 

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