Nonferrous - Commodity Report

The U.S. economy may be showing signs of stress, but many dealers of nonferrous metals continue to enjoy a modest respite from the problems that are plaguing consumers of these materials, especially those on the manufacturing side.

On the domestic manufacturing side, the twin problems of a sharp decline in new housing starts and sluggish auto sales could cut into demand for some nonferrous metals going forward into the first quarter of the year.

Supplies have been a bit muted throughout the past few months. Some dealers of aluminum, copper and several other nonferrous metals say the limited supply can be attributed to seasonal slowdowns, most likely. During the first part of the year, scrap supplies generally shrink.

The limited supply of scrap material has resulted in firm pricing for copper and aluminum. For copper, the earlier opinion that a serious price correction is imminent is less often mentioned by dealers. Instead, concerns swing more toward getting the orders and equipment in place to move material offshore. Freight rates have been climbing significantly, which is making it more of a challenge landing offshore orders. In addition to higher freight rates, the availability of containers is a growing problem when it comes to transporting material. There doesn’t appear to be any signs indicating that this problem will abate any time soon, which will make getting containers for offshore shipments a continued challenge.

As a reflection of China’s prominent role in nonferrous metals markets, a number of nonferrous scrap dealers note the strength in these markets lies primarily with Chinese buying.

Copper continues to enjoy healthy demand from China, which is bringing in more material from the U.S. and other parts of the globe. However, China may implement some interesting changes this year. The Chinese government is considering imposing a 17 percent value added tax (VAT) on scrap dealers shipping material into the country. According to published reports at press time, the VAT could kick in during January, making shipments to China more challenging and shrinking margins.

Copper has been on quite a wild ride lately, with some vendors noting that prices have bounced from $5,000 to $8,000 per ton throughout the past several years. Lately the grade has been moving up, with prices near the $3.32-per-pound level. Whether this is sustainable is uncertain.

Nickel and lead also continue to maintain fairly strong prices moving into the first quarter of the year, and aluminum is showing modest improvements as well.

One processor notes that a number of the minor metals also are seeing a pop in price, including "moly," or molybdenum, which has moved up several hundred percent throughout the past several quarters.

On the macro-economic side, the weak dollar is helping many scrap dealers take advantage of the favorable difference relative to foreign currencies by shipping more material offshore.

Zinc also continues to move at a decent clip, with better pricing power.