Nonferrous Department

Nonferrous Metals Continue Climb

It may be cold outside, but markets for many key nonferrous metals have been heating up during the first several months of 2010, continuing the trend seen throughout much of last year after markets bottomed out around February of 2009.

Copper’s strength continues to be fueled by steady to strong demand from Chinese buyers. While the economies of many countries struggled in 2009, China experienced a better than 10 percent improvement in 2009.

The copper market, however, may hit a roadblock; whether it will be a modest speed bump or a sharp downward adjustment is at question.

The slowdown may come courtesy of the Chinese government, which is looking to cool down its economy by tightening credit. According to various news reports, the People’s Bank of China has called for banks in the country to set aside greater cash reserves, which will result in tighter cash supply.

A strong upside move in the copper market in early February helped to stem a modest decline in copper prices witnessed during January.

One large nonferrous scrap dealer says even if the Chinese government can cool down its economic growth from nearly 11 percent in 2009 to 8 percent growth in 2010, it will still be significant. Therefore, he says he expects any pullback in price and demand to be short-lived.

Several traders also mention the fairly weak German economy, which is fueling bearish sentiment among copper dealers. One report notes that the German economy appears to be stalling, which may lead to diminished demand for copper scrap in that country.

The Indian economy, however, is showing fairly strong indicators. Although not as large a copper consumer as China or Germany, a robust pickup in Indian consumption could keep the flow of copper scrap steady.

Along with the possibility that China may slow its copper purchases, inventory levels for primary copper on the London Metal Exchange (LME) have climbed to record levels. A Bloomberg article notes that global inventories of copper at LME warehouses stand at nearly 760,000 tons, the highest since early 2004.

Some market bulls shrug off these high inventory levels and say they see steady-to-strong overall buying for copper as well as for other nonferrous metals, such as aluminum and nickel/stainless.

Domestic markets for aluminum and copper, which have struggled at times during the last several years, may be finding some modest strength as well.

Several scrap metal dealers are now saying that, while not running at 100 percent of capacity, the transportation and housing industries are showing signs of stabilizing. Further, some scrap dealers say they are seeing a modest improvement in some subsectors of these industries.

Also improving the market outlook for aluminum are signals from many of the top aluminum producers that they expect prices for the metal to continue to strengthen throughout 2010.

China’s growth in automobile manufacturing also holds promise for dealers of aluminum scrap. As they continue to build more vehicles, their appetite for aluminum scrap as a raw material should increase.

While primary nonferrous metals inventories are rising, there is a shortage of scrap generation. “There is a universal shortage of supply,” one nonferrous scrap dealer says. “We are in a short scrap market with tighter spreads.”

Stainless steel markets also are facing a significant scrap supply shortage. While generation is down, one scrap dealer says mills are not paying as much for the metal, while many dealers are paying more to cover their orders. “It will be interesting to see what will move first (the mills or the scrap dealers),” he says.

Finally, with fluctuations in the U.S. dollar and concern over the potential for inflation in the United States, investors are buying base metals, such as copper, aluminum and nickel, and precious metals. This has helped keep prices for many nonferrous metals fairly high, though one dealer says markets for these metals are becoming more volatile as well.

(More information on nonferrous metal markets, including consuming industry reports and breaking news, is available at www.RecyclingToday.com.)