Nonferrous Commodity Report

Despite a number of factors—the softening of offshore orders (notably from China), a more challenging shipping environment and a U.S. economy that is either in recession or is showing little growth—weighing on the U.S. scrap industry, most nonferrous metal markets continue to hold up fairly well as the calendar moves into the late spring.

Copper, aluminum, nickel and other nonferrous metals continue to move at a good price, which is helping to soak up excess material. Prices may be down a bit from their recent highs, though most nonferrous metals dealers still report fairly good markets. However, some dealers are expressing the concern that traditional market fundamentals have been replaced with a new dynamic—one driven more by external forces than by traditional supply and demand factors.

In the Midwest, aluminum supplies are abundant. One broker says the significant increase in the number of automobile shredders has led to the generation of more residual nonferrous material. While supplies of secondary metals have increased, the extended strike at American Axle & Manufacturing Co. (AAM) has resulted in a ripple effect throughout the auto industry, with many automotive suppliers having to either shut down or reduce their production as a result. Five of AAM’s plants were participating in the strike, which was settled in late May.

A number of vendors attribute some of the softening to the typical reduction in orders during the early summer. The decline in price and demand, they say, while a bit more acute than in previous summers, tracks the typical "summer doldrums." In fact, many businesses see a modest decline in operations during the summer months, only to pick up speed toward the end of the summer and into the fall.

The Midwestern broker adds that even with some concerns about demand from domestic consumers, more aluminum is finding its way into LME (London Metal Exchange) homes, which, he speculates, could result in a jump in warehouse stocks. This could keep a lid on aluminum prices going forward.

Another factor that continues to play a role in the nonferrous metals is the large stake that investment funds are taking in these markets. The presence of investment funds in many base commodities has been growing throughout the past several years, and, according to a number of vendors, doesn’t show signs of changing during the next several quarters.

The prices of many metals are fluctuating. Nickel, aluminum and copper all continue to hold up, though prices from some other nonferrous metals have dipped since earlier this year.

In the Midwest, prices will eventually come down, another Midwestern processor predicts. However, a new, higher floor price likely will be established.

Copper wire, which was a more challenging grade to get several years ago, is getting easier to come by.

One reason for the slippage in copper pricing is that there is less demand for copper in China. The continued shortage of shipping containers has led to greater challenges for those recyclers who are looking to move their material overseas.

The problem with container availability is having a greater impact on many of the nonferrous markets currently. With the weak U.S. dollar, fewer containers, and even fewer vessels, are arriving in the country. A number of reports have indicated that many vessels have switched from a U.S.-to-Asia route to a more lucrative Europe-to-Asia route.

Lead has displayed surprising strength throughout the past several quarters, and many dealers of the metal say they expect this trend to continue, with some noting that prices have risen to a level in line with aluminum values.