Three key regions of the world; North America, Europe and China, are displaying three fairly different outlooks for traders of nonferrous scrap metal. The North American market, especially the United States, is in fairly decent shape. Manufacturing has steadily improved, and movement and prices for most nonferrous metals have held up.
China, which has generated significant concern as the country has been showing signs of slowing down, continues to be somewhat active for copper and stainless steel, although there are mixed signals for some metals.
The European market, which has been struggling with economic problems in many pockets, is proving to be the most challenging region for the scrap metal industry.
Overall, most nonferrous metals are in a bit of a tough patch, with the continuing problems in Europe weighing heavily on copper and aluminium markets. Adding to the overall challenges, China, which has been a fairly healthy outlet for copper and stainless steel, is showing signs of a further slowing of its economy. The net result has been prices for several nonferrous metals slipping.
Despite some negative sentiment, overall prices are still at fairly high levels. In early May, copper has been trading at more than $3.75 per pound, although pricing seems to be trending toward the down side.
For scrap metal recyclers dealing with the European and Asian markets, these two large economies are a cause of concern.
In Europe, copper markets have been struggling due to economic problems with the eurozone. Adding to the challenge for copper recyclers in Europe, more recent figures show that manufacturing is slowing down on the continent, which is helping push copper prices lower. Recent figures show that a manufacturing purchasing managers’ index for April stands at 45.9, a decline from the previous month’s index figure of 47.7. Any number below 50 indicates a contracting manufacturing base.
Adding to the challenges in Europe, the unemployment rate in euro zone countries rose to 10.9% in March, equaling a record high set 15 years ago. The European countries causing much of the problem are Italy and Spain, both saddled with debt problems.
A European scrap metal trader terms it succinctly: “Demand in Europe is terrible.”
Another large nonferrous broker says that while the slump in the European manufacturing sector is making the market for copper scrap, aluminium scrap and several other nonferrous metals more challenging, the U.S. manufacturing base has seen a bit of a rebirth.
With the confluence of often-contradictory economic indicators for the global economy, a number of commodity analysts are mixed on copper markets through the rest of 2012. Several analysts expect European countries to fall into a shallow recession, while avoiding any further global financial problems. At the same time, the Chinese economy could reflect the much hoped-for soft landing.
If these scenarios play out, the softness in demand for the metals in these two areas should be short lived.
Supporting the opinion that copper markets will improve through the rest of 2012, during a conference call to discuss quarterly figures, the U.S.-based copper producer Southern Copper said it expects global refined copper demand to increase by between 2.5% and 3% in 2012.
China, which has become the largest consumer of copper, may also be showing some signs of improvement. One source notes that there are signs that manufacturing in China is improving.
One issue mentioned by a number of people has been the move by Chinese buyers to use copper scrap as collateral. This approach is partly due to greater difficulties with obtaining more conventional financing from banks.
Although there are signs that copper scrap shipments to China are starting to improve, a number of issues have been cropping up for exporters to that country. A number of brokers in the Middle East say that Chinese government officials are becoming more aggressive in an attempt to ensure that quality levels improve. This is working to slow down the shipment of many recyclables into the country.
Adding to these challenges, there continue to be reports of theft of copper shipments. A number of recyclers say they have fallen victim to thefts, especially with shipments to southern China.
One scrap metal broker in the Middle East says that orders into China have eased, although he notes that South Korea has been buying “bullishly” as of late.
The aluminium market appears to be in better shape, especially in Europe. Several brokers note that prices remain stable and demand seems to be holding up. Shipments to China are moderately better. South Korea also has been more active for aluminium scrap, although Indian markets are slowing.
While aluminium markets are holding up fairly well, there are some moves being taken to prevent a significant overcapacity. Alumina Ltd., a large producer of material used to make aluminium, announced plans to lower its output target in 2012 as it forecasts slowing demand for aluminium.
In its quarterly report, Alumina Ltd. forecasts that global aluminium demand will increase by between 5 to 7% in 2012, slightly slower than 2011’s demand figure.
One consumer of aluminium scrap in India says that a big problem with imports of aluminium into India, as well as other scrap metal grades, has been the weaker Indian currency. The result is the cost to import any scrap material into the country has increased. “It is really a big issue,” the consumer says. “Everyone’s costs go up between 10 to 15%.”
Adding to the caution being expressed over global aluminium demand, according to Bloomberg, the Russian company Rusal is looking at closing a number of aluminium smelters as prices decline.
Stainless steel scrap seems to be a grade that has held up fairly well in both Europe and Asia. Several scrap metal recyclers point to the lack of supply of the metal in both regions.
