*Average monthly settlement price, cash buyer; U.S. dollars per metric ton.
Source: London Metal Exchange, www.lme.comMoving into the late third quarter of 2010, it appears that obtaining adequate supplies of nonferrous scrap is the foremost challenge facing recyclers. Pricing for some metals has strengthened in the summer months, which ideally will bring out additional obsolete scrap. Recyclers, however, don’t foresee greater flows occurring except in tandem with a stronger construction sector and overall economy.
According to the scrap dealers contacted for this article, their biggest concern is the lack of volume. At the end of August, most processors say they are seeing a modest uptick in the volume of material, though levels are still far from where they were several years ago. Few scrap dealers contacted say they feel scrap volumes will return to the levels seen in the middle of 2008 (before the market crash) in the foreseeable future, though several scrap dealers say they are banking on a steady, inexorable increase in the volumes being generated as the U.S. economy improves.
One East Coast recycler says that during the first quarter of this year his company was seeing steady increases in the supply of nonferrous metals. This was a continuation of the second half of last year, when the scrap industry rebounded from the collapse in late 2008. However, during the second quarter, “things dried up,” he says. Moving toward the end of the summer, concerns remain that supply is constrained. “There just is not enough scrap out there,” the scrap dealer adds.
Another scrap dealer says much of the concern with nonferrous markets regards the health of the overall U.S. economy. During the past several months, a host of economists have been questioning whether the U.S. is heading into a double dip recession. Although generation has been increasing, several scrap dealers say the growth is smaller than earlier anticipated.
However, a number of other scrap dealers say that while volumes are down from 2008, there has been a noticeable pickup in the summer, which is creating optimism that markets will be on firmer footing by the end of this year.
Posing a possible problem, especially for copper, is the short-term outlook in China’s buying. As the dominant buyer of copper, China has been sending out mixed signals on what to expect through the end of this year. There have been reports that the Chinese government is closing down several thousand manufacturing facilities, which could reduce the demand for raw materials.
A scrap dealer on the West Coast also notes that customs regulations and restrictions continue to be introduced, making it more challenging to ship various nonferrous scrap metals, especially copper, to many Chinese ports.
Despite concerns that a slowdown in copper purchases by China could put a crimp in price and movement of the red metal, more recent statistics show that China has increased its purchases of copper for July, offsetting a steady decline in shipments.
The recent increase in copper imports to China is the first in four months and is attributed to the arrival of contracted spot cargoes, according to several published reports. Traders expect this to be a new trend, according to reports, and cite rising cancelled warrants—material earmarked for delivery—on copper inventories in LME (London Metal Exchange) warehouses.
As for prices, copper is becoming volatile at the high end. Copper has been moving in a trading range of between $3.10 to $3.40 per pound through the middle of August. While most scrap dealers say a copper price of greater than $3 per pound would make for an excellent market, sharp price swings are making for an uncertain one.
Aluminum markets are displaying curious trends. LME aluminum inventories are up significantly from three years ago; however, prices have held up fairly well. One report attributes this trend to using inventoried product to help finance deals.
One commodity analyst says he expects prices for stainless steel to drop by more than 10 percent as demand declines and some producers opt to take mills off line.
While prices could slip in the near term, a significant increase in nickel supply could be coming. Vale, a large nickel producer, recently announced that its Goro mine in New Caledonia has opened. The facility is expected to have an estimated annual nominal capacity of 58,000 metric tons.