Nonferrous Scrap

RTGE January Issue:  Extended Nonferrous Market Reports

 

China - Darrell Wong, SPS California

China - Eric Deng, Ling Tong Metal

China - TopRecycle

Europe - Boris Bronneberg, Source Montan Handels

Western Europe/Italy - Fernando Duranti, Leghe & Metalli  

 

CHINA>>Darrell Wong, SPS California

Copper’s inverse relationship with the U.S. dollar has clearly been the driver behind the metal’s recent price strength with additional support from China’s import demand, South American supply disruptions, and intensified speculative buying by investors.

           

Metal prices have remained higher as of this mid-December writing, despite the dollar holding relatively steady against the ¥/£/€ currencies. A narrowing Shanghai/LME arbitrage seems to be keeping the complex fairly buoyant. In this regard, the arbitrage has narrowed to the point that imports should theoretically flow more freely into China.

           

However, with the Chinese having already imported massive amounts of metal throughout 2009, it is unrealistic to believe a further narrowing of the Shanghai/LME arbitrage alone would spark further imports. (It is reported the imports of unwrought copper and copper products rose an unexpected 10.3 percent for the month of November. Even more significant is the figure for scrap imports, which rose 15.4 percent during this same period.)  What will keep buying at fevered pace would be the seasonal bank loans by many Chinese banks.

           

In previous years loans supplied by Chinese banks have funded speculative seasonal activity in not only copper, but all base metals. These bank loans, typically funded during the first quarter, should bolster metal prices. In 2009, Chinese lenders had advanced a record 9.21 trillion Yuan (US$1.34 trillion) up to the end of November. As with subsequent years, each new round of funding appears to have a direct relationship to metal prices, as Chinese consumers go out and use the cash and buy hard commodities such as metals and especially copper.  Given the current supply/demand imbalance, this new influx of cash should, in the short term, push metal prices higher.

           

As of mid-December there is an overall sense of the year’s business winding down a bit earlier than in past years, as the majority of the buying has already been contracted this side of the Chinese New Year. It is clear all eyes are focused on what China’s next move will be, as up until now their buying had been quite reserved, while buyers have attempted to keep discounts wide. But given the tight supplies of scrap globally, it will be interesting to see if, with this new influx of cash via the bank loans, sellers will discount contracts to try to stimulate new purchases.

           

2010 will certainly be another challenging trading year.

 

Darrell Wong can be contacted at darrell.wong@sps-ca.com.

 

 

CHINA>> Eric Deng, Ling Tong Metal

Copper prices continued to fluctuate at the highs in December. In mid-December, the dollar started to rally strongly, but base metals on London Metal Exchange (LME) still presented unexpectedly strong resistance. From insiders, there are two momentums to support the prices last week. First, the upbeat economic data from the U.S. greatly boosted investors’ confidence.

 

A series of economic data released by their government is better-than-forecasted, signaling its economy is on the way of recovery. Secondly, base metals prices are up in sympathy with one another. In other words, once the LME copper gets weak, LME aluminium and LME nickel rally strongly, helping LME copper to shake the weak trend.

 

According to market research, most local copper users are still very cautious in making purchases now. But many say they are not worried that the copper price may continue to decline in the short term. To begin with, most local holders stick persistently to their bidding prices at present. For one, local copper scrap market remains in the short supply. Shredded copper is the tightest variety in the market now. For another, many overseas holders are also reluctant to make any concession in the price due to the strong LME prices. Therefore, the users will have to raise the purchasing prices as high as possible to win the goods. Secondly, many market players worried copper price may plunge sharply during the period of National Day holiday in 2009. Thus, in September, many started to sell the stockpiles to reduce the risk. They also did the same in November. However, copper hasn’t dropped sharply in December as expected.

 

From some insiders, the domestic copper price may rise impressively in January or March 2010. The reason is that China’s Spring Festival holiday is in February in 2010. As a result, consumers may choose January to stockpile the metal for the coming year. If buying rises, so will the price. If it fails to do so in January, March may still be the day for the following reasons. One, the meeting of the NPC (the National People’s Congress) will be held in March. Copper price will be supported on the front of the news. Two, the operating rate in copper enterprises also starts climbing in that month (March), so demand for the metal will also follow up. Copper may continue a round of correction at the year-end, but most market players are still hopeful for the market in coming days.

 

According to our past statistics, the LME copper/LME aluminium price ratio will always keep between a level of 1.5 and 2.0. However, since the beginning of 2009, LME copper has risen sharply. The ratio has so far surged to a level of 3.5, as of mid-December. The still relatively low aluminium price is favored again by many investors, especially after the strong gold and oil correct lower under the pressure from the rallying U.S. dollar. Moreover, it is also rumored in the market that some aluminium smelters in Europe may shut down the capacity in the short term. If true, the market supplies will get tight further.

 

Meanwhile, aluminium price is also supported by the increasing investment money flows. From the data, LME aluminium touched a level of 2,303 dollar/ton in the session on Dec. 14, a fresh record high for 2009, soaring about 351 dollar/ton within only half a month. It stayed at a level of 1,952 dollar/ton on Nov. How about aluminium price in China? Due to weak consumption, the price rises in a relatively slow pace. Aluminium contract 1003 posted on Shanghai Futures Exchange (SHFE) hit its highest level of 16,630 yuan/ton on Dec. 14.(It was at its lowest level of 15,510 yuan/ton on Nov. 27.) Local spot aluminium price has also climbed by 850 yuan/ton from that day to today’s level of 16,200 yuan/ton. “This round of rise at the year-end is truly cheerful,” a local aluminium trader said this morning.

 

How about the aftermarket? It is still not very clear, from current situation. In the author’s view, the market players should eye closely the movements of the investment money flows and get cautious at the year-end. Easy come, easy go. After all, inventories of the metal are still on the increase, and sales in spot aluminium market remain far from satisfactory. If investors withdraw the funds from the market, aluminium may be seen a round of deep correction after previous big gains.

 

Eric Deng of metals news and pricing service Ling Tong Metal can be contacted at tungshuzhi@hotmail.com.

 

 

CHINA>>TopRecycle, www.TopRecycle.com 

As 2010 began, China’s domestic traders imported large quantities of refined copper and scrap copper, driving domestic and international copper prices upward. But as China’s consumer demand was not as strong as expected, a potential supply surplus caused by the large imports has begun emerging.

 

The current copper price is strongly supported by bullish expectations and traders’ unwillingness to sell, but it is an economic recovery that will be the main driving force for copper prices in the future. Consumer demand for copper in Europe and the United States will push copper price to a higher level, which is the main reason that we remain bullish on copper prices for 2010.

 

At present, there are a large number of hidden inventories of both refined copper resources and scrap copper supply in the domestic market. The inventory pressure will restrict the rise of copper prices to some extent, at least in the short-term.

 

Recently, a sustained decline in copper imports in Guangdong province led to a certain degree of scrap supply shortage in that local market. The tension also affected other domestic copper distribution markets. According to some scrap traders, the copper business was not very good in mid-December, and aluminium scrap, stainless steel scrap and other metals were also yielding low margins.

 

The increasing cost to import copper and other containers along with the extended operating cycle of clearance has significantly affected the importers’ enthusiasm. It is reported that in Guangdong province there are 89 metal scraps enterprises that have been under investigation by the local customs supervision and control departments, which directly affects their volume of scrap container imports.

 

It is expected that there will not be any large-scale purchasing activities for metal scrap until next March. In the short term the domestic imports of metal scrap will maintain a stable-to-low level.

 

In the East China (Shanghai, Ningbo, Taizhou) market, the copper scrap supply has tended to be tight to some extent, because the local traders have eased back on the number of containers of imported copper scrap for months, and some scrap holders are reluctant to sell.

 

In fact, the market shortage of copper scrap does not really drive the rising price of copper, but it is mainly due to traders’ unwillingness to sell at low pricing since most traders remain optimistic about the market outlook.

 

This report has been prepared by TopRecycle, a market information company found on the Web at www.TopRecycle.com.

 

 

EUROPE>>Boris Bronneberg, Source Montan Handels 

The nonferrous markets have seen some movement over the past few weeks in a positive way. At least pricewise, the demand for nonferrous metals has gone up with the exception of zinc and lead. Copper and aluminium have been in fair demand when compared to the last months. There is a decline a little bit on the copper side in early December, but I think that is mainly due to Christmas and the holidays coming up. So production has slowed down a touch.

           

Demand for aluminium has been mainly from outside of Europe. That’s still going pretty strong. It is mainly East Asian and Indian buyers that are looking for aluminium at this time. Zinc has remained slow as I said. Lead has been fairly constant, but there is no high demand for that material.

           

For stainless steel, the demand is still reasonable, but the prices obviously related to the LME are not as good as the last period. The market for stainless in Asia hasn’t picked up whatsoever compared to last month. Local demand has been steady. Selling material has never been a problem.

           

Risings haven’t changed all that much, it’s been pretty slow throughout. During the first two weeks of December, people have brought in more material. That seems to be a holiday thing and then the last two weeks of the month will likely be slow. Like most people, we are going to be closing from Dec. 23 through Jan. 4.

           

Weather hasn’t been a factor yet. It actually just started to freeze a little bit over the last couple days in Central Europe. The colder weather does seem to push the ferrous prices up a bit, which in turn obviously has an impact on some nonferrous items, but there has been nothing spectacular yet. I think that is either still to come or we’ll pass over that happening this winter. It doesn’t seem to be an especially cold winter as far as I can tell, in Central Europe in any case.

           

A lot of people are positive about the Chinese New Year and what will come around just after that day. Honestly I think we have been playing that song for the last three years or so and it hasn’t really put back the demand that we had seen before that time. I don’t think that big demand will come back in late 2009 either. The Chinese have been holding off on the copper and the brasses mainly due to duty changes. Duties have gone up significantly on Chinese imports, which means they haven’t been able to buy the quantities.

           

Demand will most likely go up in the early months of 2010, but I don’t see it rising significantly simply because there is no physical demand as there was a few years ago. It will be more positive I think but I don’t see a huge upturn in demand or prices for that matter. The prices that we see on the LME today do not relate to physical demand at all, especially when you look at copper.

           

Even when you look at things like aluminium, even with the high stocks, the price of aluminium is very high. Much of the metal is actually quite high if you look at it historically and the physical demand is quite low. It is very easy to pick up copper cathodes at a very small premium at the moment.

           

If I look at the current sentiment from consumers, a little more on the copper side, looking at long term contracts, there seems to be a feeling from consumers that high-grade coppers will be in fairly ready supply. The prices that they are offering at the moment do not show any reason to expect a high premium on grade A prime copper.  There are on the other hand, fairly low refining charges for the lower grades of copper where they seem to be expecting the Chinese and other foreign buyers to come back and be more aggressive.

           

For any kind of red brass, hard brass and the likes, the demand is very low at the moment. Most consumers stopped buying a few weeks ago for 2009. It seems to be a combination of two things, demand from outside Europe has been low and demand for their products has been equally low. It’s been very difficult for them to sell their products.

           

The demand for high-quality brass, like Brass 67 straight alloys, has been very constant over the last year if you look at the price and percentage jumps, that demand seems still to be fair.

           

On the other hand we see the rising of residues where we can obviously quite easily conclude what the production numbers at the producers are. The risings of residue has been very low. That total market has shrunk by at least one third on that side. That would, just by simple conclusion, mean that production had been reduced by that same third. It should be around that number.

           

Moving scrap inside of Europe hasn’t been an issue over the past few months. Moving scrap outside to any Southeast Asian or Far Eastern destination is always a matter of ups and downs regarding the freight costs. We’ve seen that bookings for January have gone up so that January might become a tight month for getting containers simply because I think people are expecting to sell more. So they are already booking their containers. That’s the one thought.

           

Prices are fairly stable though. It’s not that the prices are up by 20 percent if they’re not there. If they’re available, they’re available at pretty much the same price give or take five percent, nothing spectacular. Over the last month we have been shipping over 100 containers a week and we haven’t had any significant issues regarding containers.

 

Boris Bronneberg can be contacted at boris@source-montan.de.

 

 

WESTERN EUROPE, ITALY >> Fernando Duranti, Leghe & Metalli 

We’re under a cold spell at the moment and we’re close to -10 Celsius. I won’t say that business hasn’t been very good because demand has picked up actually. I would say that local manufacturers of semi-finished products are working between 50 to 60 percent of capacity today. Some sales of brass scrap were done, even from France and Germany, during December and parts of November.

           

It looks as if there is more interest today, now, than there was one month ago. Obviously now, with the holidays about to start, people are already closed and because of the epiphany on January 6^th, people will keep their production closed until then. They will start production gradually on Jan. 7^th and have a look at the market and what it is doing.

           

It looks as though people have been asking for deliveries in January so consequently there is a very good chance that things might pick up a bit more in January. I would say the brasses are doing quite well also because of the fact that export prices for China and India have been on average at the same level as domestic prices. Or maybe even if it were $50, $60 or $70 more, the difference wasn’t enough to justify exporting the material to the Far East or India because of the small margins, adding freight, delivery costs and financing.  So obviously local consumers have been buying more than what they did in early November.

           

On the other metals, zinc was probably the most active metal. It was active because the zinc consumers were buying quite actively, I would say one or two loads per day. They never stopped until early December and they probably had too high of stocks and they wanted to stay on even levels for the end of the year and then start picking up again. We have actually been told that they’re not buying in December but will start buying in early January as soon as we come back to work.

           

On the aluminium side, I would say that prices have strengthened and there isn’t so much of a deal available as there was six or seven months ago. Prices have gone up between $400 and $600 per ton I would say. Not on turnings. Turnings have been up about $300 but good grade scrap has gone up this much. With the strengthening of the dollar from $1.51 to $1.43, obviously there is a range.

           

The secondary aluminium ingots have increased considerably too. I would say by at least 300 euro per ton in the last two to three weeks.

           

The automotive industry has picked up in Italy and car sales have gone up substantially in November and likely December. In October it crashed down, but for November it picked up again. Italy was one of the first countries to start a “Cash for Clunkers” program I think they’ve renewed it for 2010. They have obtained authorization from the government. It was too obvious that it was pushing up the economy.

           

The semi-finished goods coming out of Europe will probably have to pay at least a 10 percent duty in Italy. Even though the Italians have the same prices as the Russians, they won’t let the foreign companies come in and take their trade away. It’s not a state protection. It is a producer protection. By selling their materials at a flat rate, making very little profit, but not letting foreign material come in.

           

With the copper price going up in respect to where it was in May or June of last year, people who have stocks produce with low-priced copper which are now selling at higher priced copper and they can manipulate their price as much as they want and make less profit but sell their product at least.

           

As I said the export market is coming and going. There are moments where you insist with the exporters. You offer them quantities and then they pay you. It has been picking up these past two to three weeks. It looks like the Chinese are starting to replenish their stocks and buy in on higher priced copper items.

 

Fernando Duranti can be contacted at fernandoduranti@leghemetalli.it