Nonferrous

 CATCHING A BREATHER

Some nonferrous metals that experienced a surge through the first half of this year are returning from these highs. Copper prices, which exploded during the second quarter, have been easing back during August. The decline hasn’t been a big surprise, as China, the big driver of the metal’s demand, has indicated that it has more than enough material and is scaling back new orders.

Inventory levels appear to be very high, with one report noting that copper inventories are at their highest level in two years. Stockpiles of copper in Shanghai warehouses rose by 5,543 metric tons, or by 7.3 percent, to 81,650 metric tons by the middle of August, according to a Bloomberg report.

Even with the recent retrenchment in copper prices, some handlers of the metal say copper prices are still nearly double what they were at the beginning of this year. With copper priced at nearly $2.87 per pound, there is still plenty of room for decline, though many handlers say they feel that the worst has passed.

A Bloomberg news item also notes that refined copper imports by China dropped by 23 percent in July from a record high the previous month, after domestic stockpiles expanded and scrap supplies increased.

One copper scrap dealer says the trend has now flipped, with the supply of copper scrap being much better, while demand is muted.

With the possibility of some pickup in orders from investment houses seeking to use commodity trading as an investment strategy, more companies that are taking physical possession of the metal are seeking to use hedging to protect against sharper swings in price. Similar to the strong run that took place earlier this decade, more handlers of copper and nickel are leery of going too long on the commodity and are opting to lock in orders as soon as they get material delivered to their doors.

While the present market condition for copper is still fairly strong, some vendors are expressing caution. One source says that with minimal movement in the U.S., and Chinese buyers sending signals that they may scale back orders, prices may be as much as $1 per pound overvalued at present. Even with the less-than-bullish short-term outlook, the source says conditions are far better than they were earlier this year.

On a more upbeat note, another large-scale broker says that most nonferrous grades are in fairly good shape. Movement is decent, supply is better than it was several quarters ago, and, despite the recent price drop, there still seems to be a relatively strong pricing structure.

While copper has been getting the most attention from industry observers, aluminum and nickel also have gained some strength. A representative from a Midwestern firm says both metals are doing quite well. Material is moving, but, at the same time, industrial generation is slow. He speculates that much of the recent supply is coming from sources that have been sitting on material until prices improved.

For scrap metal recyclers who are handling larger amounts of nonferrous metals there is a growing sense of optimism that markets for copper, aluminum, nickel and other nonferrous metals will hold up fairly well through the rest of the year. However, with some of these nonferrous metals showing marked price increases during the past nine-plus months, caution signals are being expressed, as the potential for a speculative bubble burst could result in a sharp drop in prices.

For aluminum producers, while demand is decent, there doesn’t appear to be any strong increase in production by domestic consumers.

Nickel, on the other hand, is showing mixed signals. There have been some maufacturing stoppages, which have reduced the supply of the material on the market. However, some mills have started to come back online, which could boost production of the metal and demand for scrap.

The key factor right now is whether there is a sustained demand for nickel and stainless through the second half of 2009 and early 2010.

One further concern has been the lack of any surge in manufacturing by the end of August. Several sources note that there doesn’t seem to be the typical increase in production.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)