The secondary business has been a mixed bag. This past year we have had a resurgence, with the demand coming back and automotive getting busier. With the catastrophe going on in Japan, we are definitely seeing a big decline in demand with the parts business over in Japan. A lot of die casters are tied in with Japan. There is still decent demand, but everything has softened up a little bit in the last couple of months. It is a combination of what is going on in Japan as well as a seasonal slowdown.
Scrap seems to be available. Demand from overseas has definitely tapered off. They are still buying, but not as aggressively as they have in the last couple of years. India is pretty active. They are a lot more cautious buyers than the Chinese.
I think in general that commodities, especially aluminum, have a bright near-term future. In the fourth quarter I expect it to be busier. The energy situation is a major factor. From what we are reading, prime is still going to be assured on the world demand. As long as energy is being rationed to China, they will not produce aluminum as fast as the world is going to consume it. I think we are in for some higher pricing going forward. It is hard to tell how soon that is going to happen.
Midwest premium is at 8.5 cents per pound. They were talking about trying to allow more to come out of the LME warehouse. If they change the volume, then that will really knock the premium way down. I don’t think that is going to happen because most of these warehouses are not equipped to accommodate the traffic.
We have a positive outlook on the floor price. I think the world is getting a little more educated and it will keep the playing field a little more even on the scrap end of things. There was a lot of irrational buying and paying for poor quality. Chinese buyers are going to be smarter buyers and a more controlled market. They are trying to control inflation. I think they are going to be bigger players and smarter players.
Michael Dorfman can be contacted at mdorfman@statemetalindustries.com