Nonferrous Department

NONFERROUS MARKETS TAKE THE FORKED ROAD

Coming to the end of 2009, nonferrous metals continue to display conflicting signals. Copper and aluminum offer examples of the variability in nonferrous markets. Copper markets have been climbing, despite reaching prices that are above the 12-month high. Some traders say they feel the metal owes its strength in part to the weakened U.S. dollar, which has many investors looking to hard assets and metals as a hedge. The increase in prices comes despite climbing copper inventories.

Some skeptics say the price increases come at the same time that China is sending out signals that it will reduce future purchases. However, other analysts say the Chinese economy is expected to grow at such a pace that it will continue to require more copper scrap to meet its internal demand. This buying likely will make up for the continued decline in North American consumption that is expected.

The upbeat outlook for copper markets, though, is not universal. Jason Schenker, president of Prestige Economics LLC, Austin, Texas, writes in a recent report, “We are forecasting a slight correction in copper prices in the first quarter of next year, when U.S. housing may show weakness if the Housing Tax Credit expires.”

Beyond the first quarter of next year, Schenker says he expects a trend toward higher copper prices, with 2010 and 2011 average prices of $3.06 and $3.10 per pound, respectively. These averages come close to the $3.13 per pound average price seen in 2008 and show copper to have the most bullish potential of the industrial metals.
Copper’s solid bounce may be attributed in part to the financial market liquidity of copper futures prices, which allows medium-term expectations to affect near-term pricing. This trend first caught the interest of many scrap dealers several years ago, when base metals were used as investment vehicles, resulting in a run-up in prices.
Aluminum continues to be a slumbering giant. Unlike copper, aluminum inventories have been declining, as has pricing for the metal. Aluminum pricing has been on the soft side as inventory levels continue to outweigh demand, despite significant capacity cuts during the past several quarters.

At the October Bureau of International Recycling (BIR) Autumn Round-Table Sessions, guest speaker Günter Kirchner, secretary general of the Organization of European Aluminum Refiners and Remelters, said he was “not so sure the bad times are really over” for aluminum. However, he also said he was certain that, for the long term, the recovery of aluminum from scrap would increase.

Kirchner noted the massive leap in international aluminum scrap flows—from 427,200 metric tons in 1995 to an estimated 2.8 million metric tons in 2007—during his presentation. He also called for a casting alloys pricing system that provided a stable relationship between aluminum alloys and scrap which, he said, was currently “missing.”

In his report, Schenker writes that aluminum prices, like steel prices, have been depressed and are at 2005 levels. At the same time, inventories of aluminum have remained relatively low. Schenker says a key reason for the problem is the high cost of energy required to produce aluminum.

Nickel, similar to copper, has seen a sharp increase in prices, despite increasing inventories. Nickel and nickel scrap have benefitted from their use in a host of energy-related industries recently.

During the same BIR meeting, Michael Wright, chairman of the BIR’s Stainless Steel & Special Alloys Division, said earlier forecasts of global stainless steel production reaching 24 million metric tons during 2009 might be off by as much as half-a-million metric tons. He said he was more optimistic about next year’s global production goal, which is forecasted to be 27.2 million metric tons.

Despite this forecasted increase in production, he noted that the market for nickel was “fragile” and said he was uncertain if there was truly a recovery taking place.

As for global nickel scrap availability, Wright said it would likely fall from 7.5 million metric tons in 2008 to nearly 6.8 million metric tons in 2009. However, he said he felt that availability would increase starting in 2010 and could possibly exceed 8 million metric tons by 2013 at the latest.

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