Shrugging it Off

SHRUGGING IT OFF

The recovery of the nonferrous market has astounded many industry observers as of late. After cratering at the beginning of 2009, many nonferrous metals, including copper, nickel/stainless and, to a lesser degree, aluminum, have seen a subsequent rally in prices.

As prices crept above $3 per pound, quite a few industry observers were calling for price corrections for these metals; and, earlier this summer, prices did slip, especially for copper.

But, roughly a year since the significant market collapse occurred, the market is expressing optimism that nonferrous metals should hold up fairly well moving into early next year.

The copper market holds significant concerns, however. Domestically, generation continues to be a challenge. With domestic generation still inconsistent, new supplies of the metal remain hard to come by. In late summer Chinese buyers were signaling that they were loaded with supply and that they may reduce their new orders.

With this less-than-sterling short-term outlook, the natural inclination would be to tighten the belt and wait for the inevitable correction to occur. However, the copper market, while being buffeted a bit during September, seems to have found a pricing floor and has been showing positive signs.

Speakers at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodity Roundtable in mid-September, expressed cautious optimism about nonferrous metals markets.

Catherine Virga of CPM Group, New York City, a Roundtable speaker, noted that demand for copper could recover more swiftly than copper supplies, particularly after several new copper mining development projects were put on hold following the 2008 collapse in the per-pound price of copper. The situation has tightened supplies of the metal on the London Metal Exchange (LME), which should provide upside strength.

Supporting this bullish outlook, a recent report by Macquarie Group Ltd. notes that despite indications that China’s economy is cooling, manufacturing output in the country actually is growing at a strong clip. The report notes that Chinese factory output jumped by more than 12 percent from figures for the same time in 2008. Copper imports also increased by 76 percent relative to the first eight months of 2008.

Aluminum has seen its price driven down by negative sentiment in the last year. Consolidation was expected to help curb the oversupply of aluminum on the market; however, during the past year, reports have indicated that even with significant capacity having been taken offline, many aluminum producers continue to experience difficulties.
That trend, though, may be changing, as several speakers at the ISRI Commodity Roundtables see aluminum prices rallying during the next several quarters. Javier Vasquez,  an analyst with Harbor Intelligence,  Laredo, Texas, noted that “global average daily demand is up 34 percent in August of 2009 versus January 2009.”

Vazquez noted that while inventory levels at the LME appeared to be large, much of the material was already committed to a buyer and was not available for purchase.

Finally, nickel has seen its inventories climb, especially in the Chinese market. According to one report, China, which consumes about 20 percent of all the nickel in the world, imported close to 170,000 metric tons of the metal during the first seven months of this year, a 123 percent increase from the first seven months of 2008. The surge in supply has resulted in large supplies sitting in warehouses, which could work to keep a lid on prices for nickel and stainless.

 A report by a Chinese government analyst notes that the country’s real consumption of nickel will likely increase by nearly 25 percent this year. This could prevent downward price declines for the commodity during the next several months.

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