The global economy ended 2014 on a downswing. While the U.S. economy has been strengthening through the latter half of 2014, most other regions of the world, including most of Western Europe and China, have not seen the hoped-for coattails from the stronger U.S. economy helping to strengthen their particular economies. The result has been prices for most nonferrous metals moving toward the downside through the latter half of the year.
According to a number of industry watchers, the first part of 2015 will likely be a continuation of the less-than-stellar market conditions for most nonferrous scrap metals.
China, which is the largest consumer and producer of copper, aluminium, nickel and stainless steel, continues to struggle with an economy that may be growing, but at a far slower pace than what was seen only a few years ago.
Supporting this concern, in late November, China’s government released its manufacturing activity index, which showed its lowest level since the first quarter of 2014. Following up on those figures, China’s Purchasing Managers’ Index showed a decline between October and November. China’s GDP grew by 7.3 percent during the third quarter.
Further indicative of concerns that China’s central government has in regard to its economy, in November the country’s central bank announced a rate cut, its fourth in the past year. The surprise move gave some nonferrous commodities a temporary bump at expectations that China would once again become a strong buyer of a wide range of nonferrous scrap grades.
Europe, a supplier and key end market for China, also has been plagued with listless economies. After seeing some positive signs earlier in 2014, it now appears that at the close of 2014 many of these same economies are returning to growth rates barely above zero.
In an attempt to boost economies throughout Europe, the European Union recently introduced a plan to use some funding from the European Investment Bank, along with private capital, to inject around $375 billion in private new investments in the EU.
Japan also appears to be experiencing significant economic challenges. According to several sources, the country, one of the largest importers of many base metals in Asia, has signaled that it also is entering into a recession. The country also will be likely reducing its new purchases of many nonferrous metals in the short term.
One of the initial beneficiaries of China’s rate cut was copper, which is heavily influenced by China’s economy. The country consumes close to half of all the copper in the world. However, after seeing a brief bump in copper prices in late November after the surprise rate cut, prices for the red metal then slumped as copper watchers expressed doubt the rate cut would give an immediate jolt to China’s economy.
For scrap processors, the problems with China’s economy have added to the general sense that it is becoming a more difficult proposition to ship metal into the country. Inspections have become a greater challenge for many scrap dealers. With the risk of shipments being held up at ports for an extended period of time, many European exporters are looking to move more material to other regions.
Supporting the bearish outlook for copper on the world market, Goldman Sachs forecasts copper prices will decline in 2015. With little shortage of the material on the market, trading prices will be driven by production costs.
The nickel and stainless steel markets also are in a fairly difficult position. Earlier this year many market analysts expected to see an uptick in stainless steel prices. It was thought that the move by the Indonesian government to restrict the export of ores would reduce the oversupply of nickel-based ore from the market. This would result in a drop in inventory levels, which would create more buying interests for substitutes for Indonesian ores, especially from China, the largest stainless steel producer.
However, after a short-term rally in early 2014 that helped strengthen nickel prices and gave some handlers of stainless steel scrap optimism, it appears stocks in China are still considerable.
One source says China is buying very little stainless steel scrap at the present time, which seems to indicate the country still has inventory to work off before it starts to aggressively purchase stainless steel scrap.
Adding to any delay in China entering the stainless steel scrap market has been the country’s ability to purchase nickel ore from the Philippines.
In the Bureau of International Recycling’s World Mirror on Stainless Steel & Specialty Alloys, Bharat Mandloi with Cronimet Abcom in Singapore, writes, “Markets are now being driven by fear of recession in Europe and the slowdown in China. Extreme caution and no major restocking seem to be the key strategy. The stronger U.S. dollar has helped somewhat to lessen the pain of high-priced inventory in Asian currencies.”
Mandloi continues, “Generation of scrap in Asia has slowed as mills and service centers are working at lower capacities.”
Meanwhile, consumers of stainless steel scrap in Europe have been looking to cut their purchase prices.
Outokumpu, a large stainless steel producer, estimated that the overall stainless steel operating environment would be lackluster during the fourth quarter of 2014, driven by the recent decline in the nickel price, which is negatively impacting demand in the distributor sector.