Nonferrous

Metal commodity markets don’t always move in unison, but they do tend to travel in packs. On the nonferrous scrap front, that is unfortunate for dealers of copper, stainless steel and the other metals that have witnessed declining pricing and dried-up demand.

"It’s ugly; it’s incredible," said one recycler of conditions in late October. Pricing has plummeted and offers to buy scrap are few and far between.

"I’m hearing offers along the lines of a nickel [per pound] for stainless turnings," says a recycler in the Great Lakes region.

Copper’s historic pricing highs this decade have largely been attributable to demand from China, but that nation’s 2008 economic slowdown has included a dwindling demand for and production of copper.

According to the International Copper Study Group, based in Lisbon, Portugal, the average price of copper on commodity markets fell 14 percent in just one week in mid-October. One reason: copper makers in July produced some 65,000 metric tons more copper than was used by the metal’s consumers around the world, so inventories are building.

Transaction pricing maintained by the LME demonstrates the rapid decline in the copper market. As of Oct. 20, copper had lost more than 50 percent of its value from the record-high peak it achieved in early July of 2008. While it took several years of steady, uphill climbing for copper to reach a price of more than $8,900 per metric ton, from mid-July to mid-October (a three-month span), copper has moved downward to less than $4,000 per metric ton in value.

Nickel likewise continues its price drop. On the LME, nickel hit a peak of $31,000 per metric ton in March of this year. As of the end of September, it was trading at around $15,700 per metric ton and has kept heading downward in October.

As with copper, a sudden drop in demand is the culprit. Stainless steel producers are beginning to respond with production cuts, including South Korea’s POSCO, which announced a 30 percent cut in production in October.

For stainless steel scrap dealers it has meant a much lower scale price in effect throughout the second half of 2008, and most forecasters anticipate more of the same for the remainder of the year.

Even the less volatile aluminum market is being affected by events in China. The country’s largest aluminum maker, Chalco (Aluminum Corporation of China Ltd.), announced in October that it plans to cut its annual production by 18 percent, or some 720,000 tons. In a news release, the company says it sees weakening demand for its products.

"The orders on the sell side are hard to come by; domestic [scrap] sales are weak," says a Midwestern nonferrous scrap recycler. In response, scrap recyclers have quickly ratcheted down pricing at the scale and for industrial generators, and in some cases are turning away potential customers.

Some large scrap companies have instructed their buyers and facility managers to curtail buying activity. The Midwestern recycler says he is always reluctant to do so, but at the same time the unprecedented market conditions are forcing that decision.

"Sometimes I am saying ‘no’ to material," he comments. "If I don’t have the orders on the sell side, I can’t have piles of scrap lying on the floor losing value. You hate to do that; you’d rather be a steady buyer. But never in my life have I seen a downturn that was so dramatic or that happened so quickly."

With aspects of the global slowdown including both a severe curtailment in basic materials consumption as well as tight credit for those who do wish to buy, just working through inventories becomes the crucial next step. Light at the end of the tunnel might begin to flicker when retailers, manufacturers, metals producers and scrap dealers all have less inventory on hand.

Recyclers with scrap in inventory may need to decide whether it is an opportunity or a risk to hold onto materials and speculate on when the market will bounce back with upward-moving prices.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)