All Systems Go

It looks like many recyclers are buying into the concept that nonferrous markets are operating in a new paradigm. While concerns about prices climbing too quickly without an underlying reason still linger, many scrap metal recyclers are displaying a bullish sentiment in regard to the pricing of many nonferrous metals.

Among scrap metal recyclers contacted for this write-up, consensus seems to be forming that prices, while still likely to be volatile, will trend upward. The U.S. economy, while not yet on solid footing, appears to be steadily gaining in strength. This may help to firm up prices through the first half of 2011, according to sources. With buyers for Chinese companies expected to re-enter the market in a stronger way during the next several months, the outlook is fairly bullish.

However, questions linger concerning potential supply shortfalls of many nonferrous scrap metals, notably copper. There are reports of only modest increases in the supplies of many nonferrous metals, which has some scrap metal recyclers saying they are concerned.

Copper continues to inch toward record prices throughout the past several months, with some dealers even speculating that copper could top the $5-per-pound level in the near future. The march toward higher prices, however, is fraught with volatility, as prices toward the end of January had declined from the $4.50 level to nearly $4.25 per pound.

In the Midwest, one scrap dealer called copper prices “unprecedented.” Acknowledging the possibility of further price hikes for copper, he says there is far more upside to the market than downside. Movement is good, and orders are booked solid, he adds.

While prices for nonferrous metals continue to improve, many long-time handlers of these secondary commodities are saying that the factors driving the market have less to do with the basic supply and demand and more to do with “paper” activity, as one scrap dealer describes it. Some issues that are helping to drive prices are a relatively weak U.S. dollar, increased interest in buying copper as an investment tool, with speculators continuing to buy metals in anticipation of higher prices.

Aluminum, which has experienced more challenging markets throughout the past several years, has shown strength as of late as its consuming markets, notably the automobile manufacturing sector, have perked up. One report notes aluminum prices have appreciated by nearly 40 percent during the past six months. Another factor in the improvement in aluminum markets has been the overall strength of the emerging economies of Brazil and Turkey.

Generation has been one of the biggest impediments for many scrap metal recyclers in the past several quarters. However, generation of most nonferrous metals has been gradually improving. According to several scrap dealers, supply is still not where it was in 2006 but the situation is improving. Both retail and industrial accounts are generating more material, which some scrap dealers say is allowing them to expand their sales coverage. A scrap dealer based in the West says material flow has been improving. “Business conditions are getting better,” he says. “Order books are good and we are able to fill orders for more of our customers.”

Inclement weather, which usually works to cut down supply this time of year, has yet to be a major factor for several scrap dealers, though spot shortages on the East and West coasts have arisen.

Getting back to secondary copper markets, China’s role in the market this spring will be a topic of interest. Shipments to China, especially those of copper scrap, have been soft. The Chinese New Year, which took place in early February, slowed orders from the country further. However, after this lull, a number of scrap dealers say buyers for Chinese consumers may need to be more aggressive in their purchases, which could help boost prices.

One Midwestern scrap dealer notes that the Shanghai Exchange has not kept up with the COMEX. However, if China opts to come into the market with larger orders, that imbalance will likely narrow.