Nonferrous

There may be tentative signs that some nonferrous metals are starting to find a base. However, overall, optimism toward aluminum, copper, nickel and other nonferrous metals is minimal.

For handlers of aluminum, the situation seems most challenging. The recent announcement that Aleris, Beachwood, Ohio, has filed for bankruptcy protection was the latest blow for many processors of aluminum scrap. An aluminum scrap dealer in the Midwest estimates that from 40 percent to 50 percent of dealers in the Eastern half of the country were shipping at least some aluminum scrap to Aleris.

"Aleris has people reeling," a scrap dealer notes.

As a result of the Aleris filing and the overall situation with the aluminum industry, many scrap dealers are taking a more cautious approach concerning to whom they ship material. "The ripple effect is more of a concern," the dealer notes. "Companies that are reluctant to pay in a quicker fashion end up getting a red flag as to an uncertain credit situation."

Another dealer says the health of the aluminum industry is less of a concern than the condition of the larger economy, which has created significant problems for scrap processors.

While overall demand for aluminum is down, the supply also has declined, which has led to a sluggish, albeit balanced, market. Any pickup in demand or supply could send the market strongly one way or the other.

While Aleris has been the most recent problem to emerge for the aluminum industry, it is only the latest of a number of problems that have raised concern within the industry. Capacity closures continue to sweep the global aluminum industry, with Rusal, Norsk, Century Aluminum, Rio Tinto and Alcoa all announcing plans to slash production, either temporarily or permanently.

Despite this, most industry sources say aluminum production costs are still greater than the sale price, indicating that more cuts could be in the offing.

The Chinese government is purchasing significant quantities of aluminum to help prop up its internal aluminum smelting industry. A recent report by Bloomberg notes that China is looking to purchase approximately 300,000 metric tons of aluminum from its domestic smelters, with delivery scheduled for the middle of April. The report notes that the move is the second step in the country’s plan to stockpile approximately 1 million tons of aluminum to stimulate the Chinese economy.

Copper, although not nearly in as bad a shape as aluminum, also is finding minimal end markets. One exporter notes that copper has been moving along with the overall stock market. Prices are not too bad, though overall there is little sign of strengthening in the grade throughout the first half of this year. In fact, one exporter notes that he doesn’t expect to see an improvement in scrap metal in general during the first half of this year. Even this bearish comment is more upbeat than a number of other scrap dealers, who are writing off the whole year off as a time of struggle.

Supporting the expectations of a challenging market ahead, a recent report by the World Bureau of Metal Statistics, Paris, notes that the copper market ended 2008 with nearly a 330,000 metric ton surplus. This compares to a 120,000 metric ton deficit for the prior year.

While the copper market has been a struggle, preliminary signs indicate that supply and demand are coming into balance. Recent reports from the London Metal Exchange note that inventory of the metal has stabilized. After increasing significantly toward the end of last year, inventory levels through the middle of February have dipped slightly. Despite this faint positive, many large scale producers of copper continue to forecast sluggish demand for copper in the foreseeable future.

Reports also indicate that China was very aggressive with copper scrap purchases early in February. However, even with a big jump in orders to China, a commensurate increase in price was not realized.

With most metals still experiencing downward pressure, the only metals showing positive signs are gold and silver. But these metals are being sought as a hedge against a deteriorating economic environment.