Nonferrous scrap markets ended the first quarter of 2015 on a down note. There are very few cues that may hint at any short-term improvement in markets for copper, aluminium and other nonferrous metals.
Copper looks to be carrying the most downside risk. Several sources point out there appears to be nothing but bad news for copper scrap at the present time. Prices for the metal have been trending downward over the past several quarters and are now hovering near a multi-year low.
From a base price around the mid $2.50-per-pound level there have been some modest price spikes. However, these jumps have been followed by price dips. The sentiment seems to be that any uptick in price results in a bit more copper being bled out of inventory, as some suppliers are looking to sell at the first sign of any price strength.
However, it appears that consumers are not looking to take bigger positions in the market and it is unlikely that steady and strong buying will happen any time soon.
While a minority opinion, there have been some positive issues regarding copper. These positives, however, appear more in line with anticipation of significant steps that will be taken that could drag copper scrap markets along.
The situation in China, notably an uncertain outlook, has continued to generate significant interest among many scrap metal dealers. Because the country has been such a dominant buyer of copper scrap (along with cathodes), any possible signals of a sustainable recovery in the economy or the implementation of a stimulus program to jumpstart the economy are being greeted with copper price rallies.
Part of the problem with the copper market in China is the major overhang of supply. Over the past several years a number of Chinese companies were using copper as collateral for financing deals. This activity, however, has created a significant amount of concern as a number of reports last year highlighted some irregularities with the activities.
The result has been as some of these companies defaulted on their loans they ended up selling the copper into an already saturated market.
One recent report claims that up to 60% of China’s copper stock is being used as collateral. And, with the economy in the country slipping, many of these copper-backed loans are starting to fray. This could accelerate further price erosion for the metal, and counter the bulls who feel the present price level can entice some buyers into building positions.
With the outlook for China’s manufacturing base looking more daunting, there are some speculators who are starting to anticipate an aggressive move by China’s government to undertake some significant infrastructure projects, which would require more copper.
Despite some scrap metal recyclers hoping for a turnaround, many mining concerns have been cutting capacity to reduce the surplus.
Aluminium markets have been generating a tremendous amount of positive news over the past several quarters. With auto companies in North America and Europe announcing ambitious plans to incorporate greater amounts of aluminium into new cars, the metal had seen a fairly significant switch to a positive outlook. While this positive news will likely benefit the aluminium market in the long term, the short-term situation is a bit cloudier.
With a sluggish economy throughout most of Europe, some producers are opting to permanently remove capacity from the market to stabilise prices. Moscow-based Rusal, the largest aluminium producer in the world by output, has announced that it will permanently remove around 650,000 tonnes of aluminium from the market. The company had temporarily idled capacity over the past several years and its recent decision makes this move permanent.
On the other hand, according to the Shanghai Metals Market, more than 2.5 million tonnes per year of aluminium capacity started operation in China during the fourth quarter of 2014. Meanwhile, reflecting the still-touchy economy in China, operating rates at aluminium fabricators in China were as low as 60%.
The United States-based Aluminum Association reports that outside of China there will be a global deficit of aluminium for the first quarter of 2015. However, because of China’s dominant role in the market, the oversupply of aluminium in China will push overall supply to a surplus.
Despite the mixed signals in the market, many European sources are displaying a fairly bullish outlook for the metal later this year. The drop in oil prices has had a major impact on aluminium prices. Also playing havoc on aluminium markets throughout Europe has been the strengthening U.S. dollar. These two factors are viewed as bearish.
Despite a generally lacklustre outlook for aluminium scrap, there are a few pockets of optimism. The winter months have reduced the generation of some aluminium scrap grades. With steady buying, this move has helped keep prices somewhat stable in parts of Northern Europe.