Nonferrous metals scale new heights

While aluminum scrap markets were somewhat lackluster in 2023, they have been strengthening more recently. The same can be said of copper.

 

A metals trader based in the Southeast told Recycling Today earlier this year that copper scrap markets throughout 2023 were “touch and go,” with 2024 starting similarly, while John Gross of John E. Gross Consulting in Huntington, New York, and “The Copper Journal” predicted the continuation of a bear market for the metal in 2024.

 

That has not been the case, however.

 

“If this isn’t a bull market, I don’t know what a bull market is,” says Joel Fogel, vice president of nonferrous at Middletown, Ohio-based Cohen.

 

In his April 26 edition of “The Copper Journal,” Gross writes: “The nonferrous family is no stranger to volatility, and it seems to us that copper is very near or already in the danger zone. Not a day goes by without a new commentary telling us how big the deficit will be in a year or two, and the bullish calls are echoing off the walls and reverberating around the world. After spending a year going back and forth in a 50-cent range between $3.50 and $4.00, spot copper soared nearly 60 cents in just a few weeks after breaking to the upside. And with the higher price, volatility has climbed right along with it.”

 

That trend continued through mid-May. As of May 14, spot copper on COMEX closed at a record high of $4.9535, surpassing the previous high of $4.9290 set March 4, with Gross noting that copper is a 28 percent increase from the start of this year.

 

Fogel says over the last couple years, analysts continually have said copper was in a shortage and its price would increase as a result, with some forecasting it would reach $5 per pound.

 

“It's really never even touched that or gotten near that over the last couple of years, and [the week of May 13], it did,” he says in mid-May. “I don't think we'll ever see $2 copper again. But is it sustainable, $5-plus copper or $4.50-plus copper? I don't know the answer to that. We'll just have to wait and see. But there certainly is a new baseline.”

 

The situation has created what Fogel says are some interesting dynamics. “There's big backwardation between the current months and the future months on the COMEX, and then there's even more of a backwardation or a negative arbitrage that relates to the LME [London Metal Exchange] and Shanghai [Futures Exchange],” he says. “So that's really interesting because when you're shipping copper to the European refiners, they're basing everything off of LME, not off of COMEX,” which most scrap sellers in the U.S. base their pricing on. He notes copper was priced as much as 39 cents higher on COMEX compared with the LME recently.

 

“As it relates to what's going on domestically with copper, I think a lot of consumers are moving to the September market earlier than they would because the closer markets—May specifically and July—are really reflective of the shortages of the cathode, as well as profit taking by the hedge funds and those that aren’t participating in the physical business. That's not really a realistic view of really where the market is and consumers really are not willing to trade physical units against those.”

 

He adds that the backwardation has “come in a little bit” as of mid-May and likely will continue to do so, saying, “The question is for those that are hedging, … do you have enough sales to get out of your July position, or do you have to roll contracts, and if you have to roll contracts and the backwardation continues, then there's going to be a cost a tremendous cost to do so.”

 

As more domestic consumers of No. 2 copper continue to come online, Fogel says overseas markets will be pressured. “All the European guys and the Asian guys know that there's a lot of scrap here in the United States and have always relied on that to a certain extent, and that might be tougher with the dynamics of the LME and COMEX right now,” he says.

 

In his May 17 issue of "The Copper Journal," Gross cites an unnamed high-profile analyst who said, “The market was finally getting the message of massive deficits coming down the road,” when copper rose to a record high of $4.95 the week of May 17. That analyst added, “This time is different from past rallies.”

 

Gross writes, "But there was no mention of the copper market being squeezed. And squeezed it was with the Spot price on Comex up 50 cents this month through Friday, following a 56-cent advance during April.

To our way of thinking, the volatility in copper and other metals is the result of massive speculation, whereby buying begets buying until it simply runs out of steam. We’ve been here many times before, and the story always ends in tears."

 
Regarding aluminum, Fogel says, “I think mill demand is outpacing scrap supply. Export is very, very active in some of these grades too, which is pushing the domestic market up.”

 

He adds that the LME price for aluminum has been rising consistently and is near $2,500 per metric ton as of mid-May.

 

“I think everybody's looking for units and normally this time of year we have the mill shutdowns: the old adage ‘Sell in May and go away,’” he continues. “But I do think that because there's a lack of scrap there, and there's higher demand that the mills will be actively buying through June and July, where it usually kind of backs off a little bit.”

 

In his May 21 "LME Mid-Day Report" for London-based Marex, analyst Edward Meir notes that base metals continue to push higher, with aluminum having crossed $2,700 to reach a two-year high. He writes, "Aluminum tends to lag copper when a sizeable base metals rally gets going, but fund money eventually finds it." Its ascent is in part because of a Bloomberg report May 20 that Rio Tinto has declared force majeure on alumina exports at its Queensland, Australia, refineries arising from restricted gas supply.