United States -- The year begins with some optimism that the North American economy, which was recently declared to have been in a state of recession since last March, has perhaps bottomed out.
The end of 2001 brought with it year-end book-squaring and a degree of "bottom picking" for many metals, not just for January shipments, but for extended periods as well. While purchase quantities were not huge, they perhaps served to let the market know that end users, to a degree, felt that some non-ferrous metals were available to them at bargain prices.
The liquidity of many non-ferrous consumers has come into question, and caution has become a key element in sales considerations. The net value of many companies once considered to be beyond the threat of liquidity concerns have deteriorated, and in some cases cash flow is an issue.
In the copper markets, buying has resumed at a steady pace in the New Year, although not in the usual rigorous fashion normally seen at this time of year. Many consumers have cut back production in the face of the slow economy. Scrap discounts under COMEX have remained at levels seen in the latter part of 2001, although slightly wider spreads have been evident in recent days with the higher copper market.
Of note late last year was the much-anticipated bankruptcy of Chemetco, a secondary copper smelter, which will apparently not re-open. Export markets continue to be robust, but prices have declined, especially for number two copper bound for China, as the situation on VAT policies of the Chinese government have not been settled. Although the program has been extended for a few months, there are many opinions as to what the policy for 2002 will be.
The coming months will probably bring with them increased overseas shipments of various grades of copper scrap, both to the Far East, and in some cases, Europe. Domestic consumption patterns should remain rather mundane unless there is a prolonged improvement in the economic situation. Such an improvement, if it comes at all, would most likely not occur until spring at the earliest, and its effect on scrap demand might be compromised by seasonal considerations. Robert Stein, Louis Padnos Iron & Metals
During the 4th quarter of 2001 and in the aftermath of 11th September, the aluminum scrap market has been absolutely schizophrenic. On one hand, there was the LME scampering up and down over a $220.00/MT range. On the other hand, there was a physical scrap market that was practically void of any meaningful activity.
Volume was down by about 20 percent in most of the United States. Sheet mills experienced reduced product sales and, therefore, bought less scrap, and secondary smelters suffered a similar fate.
By the beginning of January, however, the reduced flow of scrap finally began to stabilize prices as supply and demand became more balanced. Winter weather in the Northeast and Midwest also became a factor in bringing price stability to the secondary market and a slight narrowing of spreads for mill scrap.
Export demand, which had also slipped in November and December, seems to have re-awakened. No one is predicting a prompt, major turn-around for aluminum in early 2002 in the U.S., and until LME stocks start to fall, there will not be any serious, sustainable terminal market price rallies either. But for scrap, there are signs that the worst of this cycle may be behind us and that a basing process is in progress.
Over the next 30 to 60 days, with mills and secondaries both reporting slightly improved order books, and with a revived export demand expected to continue, we should see further price stability and a somewhat greater demand for scrap - and an LME that is likely to be slightly less volatile than it has been over the last 60 days of 2001. Jerry Zeffren, Commercial Metals Company
Part II of the report will be on line Friday, Feb. 1.