The slowdown in the European economy is creating problems for many nonferrous metals, including some nonferrous scrap grades.
Earlier this year there was hope that most of Europe would come out of its extended doldrums and there would be stronger buying as the manufacturing sector picked up. However, more recent figures seem to point toward a faltering economy and more European countries slipping back into recessionary mode.
For the recycling industry, one of the biggest concerns is the relative weakness in the German economy. Conventional wisdom from earlier this year had been that Germany’s economy was starting to strengthen. The improvement in the largest European economy and the third largest consumer of metal globally would thus be an economic driver for a large number of European countries.
Unfortunately, more recent information shows that German manufacturing and export figures for September have been disappointing. The most recent figures from the Centre for European Economic Research (ZEW) notes that the economic sentiment for Germany declined a sharp 10.5 points for October.
The drop is the 10th consecutive month of decline, according to ZEW.
The problem with Europe’s economy has reverberated throughout the world. China, which has had its own economic challenges through most of 2014, is being buffeted by Europe’s problems. Because Europe is the largest end market for products manufactured in China, a dip in purchases is resulting in a reduction in manufacturing in China.
For copper, the recent economic figures from Europe and China continues a steady drumbeat of bad news, which continues to soften markets for the material. Even with generation improving, end markets are becoming more problematic.
Copper and copper scrap prices had started to show some very modest improvement toward the end of the summer and into early fall. The recent downward revision in the outlook for European economies has dampened any positive outlook.
Uncertainty over China, which consumes more copper and copper scrap than any other country, also is creating a difficult environment for the metal. Several sources say there is a potential for a larger oversupply on the copper market in 2015.
In China, some questionable financing arrangements that were flagged several months ago continue to haunt the Chinese copper market. Reports that some firms were using copper as collateral for multiple financing arrangements has resulted in a crackdown by regulators in China, which ultimately is causing some smaller Chinese producers to hold off on making any new purchases.
A growing number of scrap dealers say prices are not likely to fall much farther from around the $3-per-pound-level, where they are presently. However, there doesn’t seem to be a catalyst that could spark a stronger upward swing in copper scrap prices.
There have been some moves that could firm up copper markets. Hamburg, Germany-based Aurubis has announced plans to raise its copper cathode premium by between $5 to $10 per metric ton for 2015.
Aurubis’ plan to hike the premium comes after copper premiums had declined to their lowest level in more than one year.
Aluminium also has seen a bit of softening, although the mid-term outlook for the material is more bullish. Driving a good part of this optimism has been the steady to strong growth in demand for aluminium from the automotive sector.
The optimism for aluminium in the auto sector can be seen in Constellium’s acquisition of Wise Alloys’ U.S. operations. With an expectation that aluminium demand from the auto sector will continue to strengthen, Constellium says the acquisition will allow it to boost its overall aluminium business.
Adding to the bullish outlook, Novelis recently announced it was increasing prices for its pre-anodized aluminium sheet products by between 10 to 15%, effective with shipments on Jan. 1, 2015.
In announcing the price hike, Erwin Mayr, Novelis’ senior vice president, said, “Overall demand of our premium pre-anodized product range remains strong across the globe. The price adjustment reflects the increase in our production costs combined with tighter rolling capacities throughout the industry.”
Gains in the aluminium market also are being driven by a swing to an aluminium deficit. Over the past several years there had been a considerable oversupply of aluminium on the global market. However, because of significant capacity cuts by many of the top producers, along with an increase in use, the oversupply has swung to a deficit.
That deficit may decline if China restarts some of its idled aluminium smelters. A market report from Alcoa notes that the earlier forecast of a 930,000 tonne deficit could decline to around 671,000 tonnes this year if those smelters restart.
The possible shift from a deficit to oversupply also could be driven by the continued slowdown in demand from Chinese consumers. While China’s internal consumption of aluminium is soft, China is boosting its aluminium exports.
The Aluminum Association reports that sheet and foil exports from China rose sharply for the month of August, while exports of finished aluminium structures are up close to 17% year to date.
For nickel, there could be some improvements by early 2015. Currently, prices are fairly low, in some cases less than production costs.