nonferrous

Nonferrous Feels the Pinch

The slowdown in the U.S. economy is starting to affect markets for many nonferrous metals, which had been holding up fairly well throughout the first half of this year. A number of economists are asking whether a slowdown in the U.S. economy will spread to other regions of the world. If this happens, nonferrous metals could continue to face challenges throughout the next several quarters.

Copper, which has enjoyed quite the roller-coaster ride during the past several years, is finding its footing in the mid-$3-per-pound range. While down from a crest that topped $4 per pound earlier this year, the prevailing sentiment is that prices are stabilizing, as there seems to be resistance to price erosion. If the economy improves in the second half of 2008, prices could hold up, and the floor price may not be much lower than it is right now.

Higher copper prices, in turn, have contributed to higher finished product prices, which are contributing to reduced demand for the metal. In some cases, less-expensive materials are being substituted.

While copper is soft to stable currently, aluminum seems to be showing more strength. Shipments to China have picked up, which is helping keep aluminum supply and demand in balance.

Demand for aluminum has dropped off, however. The big factor is China. With the Olympics set to begin in early August, China has shuttered many of its large and mid-sized smelters and other manufacturing facilities because of concerns about air pollution. This temporary closing has resulted in a decline in the demand for aluminum. One exporter says at least 21 large and mid-sized smelters have been temporarily closed and are expected to be offline for the duration of the Olympic Games. These recent closures follow a slew of closures at smaller facilities in the country throughout the past several months.

"Demand is weak," says one West Coast exporter. "It will likely be this way through the rest of the year."

While China is closing some plants temporality in preparation for the Olympics, the exporter also says the country’s overall economy is slowing, resulting in reduced demand for raw materials from the United States.

Because China is such a significant consumer of red metal scrap from the U.S., its buying patterns have a strong impact on other buyers of the material. A copper trader says that while China has curtailed purchases of some higher-value copper scrap grades, some lower-value grades are moving at a fair clip.

Several dealers say higher grades of copper are taking the brunt of the softening in price, as some consumers opt to buy lower-grade material.

Summer is typically a slower time of the year, and stainless steel mills, which have been running at a strong clip, are on scheduled downtime or on vacation (especially in Europe). One vendor says stainless steel is not a consumer grade right now, but a trader’s commodity.

With nickel prices reaching record levels throughout the past year, some consumers have made permanent substitutions to the grades of nickel and stainless steel they are consuming. The move from high-value scrap to a lower-value substitute will likely continue.

The order books for many nonferrous metals are slow, and the sentiment is that business will remain somewhat flat for the next several months. While prices have softened somewhat, the trend generally can be attributed to the traditional summer slowdown. However, there also are signals that the questionable U.S. economy also is contributing to the sluggishness that can be witnessed in the copper market.