Prices for nonferrous metals, such as aluminum, copper, nickel, lead, zinc and tin, continue to improve from the first quarter of 2009. From the depths of despair experienced in early 2009, prices for many of these nonferrous metals as of late April have more than doubled on the London Metal Exchange.
While this may be welcome news for many scrap metal dealers, the rebound is creating concern for others. One theme running through comments made by several scrap recyclers is that the significant jump in prices has occurred while overall market fundamentals have shown only modest improvement. The difference between the two could lead to a significant correction in the near future, several dealers speculate.
Aluminum markets are generating a significant amount of attention. One Midwestern scrap recycler says there is no reason for the steady price increase in aluminum. Manufacturing is improving, though only modestly. The sharp increase in price isn’t warranted by the uptick in manufacturing. “It is tough to put a finger on the market right now. It could collapse at any time,” he says.
Other nonferrous scrap dealers are expressing similarly bearish sentiments. Another Midwestern scrap dealer appears to be even more skeptical, noting that his company is forecasting quite a large downturn for aluminum. “The market right now has nothing to do with supply,” he says.
The dealer adds that from his point of view, movement of aluminum scrap is still slow.
Earlier this year several dealers noted that a fairly tough winter sharply reduced the supply of metals. At the same time, a number of consumers were in the position of having to restock inventory. But, at the start of spring, it looks as if there won’t be a strong push to rebuild inventories. Further, after complaining about a lack of material coming through their doors, more nonferrous recyclers say they are seeing a pickup in their supplies, both from street trade and from industrial generators.
While inventories at various consumers have increased to meet their short-term needs, inventories at London Metal Exchange warehouses have declined. The inventory levels had been climbing, even while prices climbed during the past several quarters. However, the more recent trend has been toward lower inventory levels for a number of nonferrous metals. This may help to keep a floor on price declines for some nonferrous metals.
A scrap dealer in the South says he is seeing a pickup in delivery of aluminum and copper thanks to higher ferrous prices. Renewed interest in ferrous scrap has resulted in peddlers also bringing in nonferrous metals with this material.
There are positive signs on the manufacturing front. Ford Motor Co. has posted a profit for its most recently reported quarter. For the first quarter, Ford earned $2.1 billion. This compares to a loss of nearly $665 million one year earlier.
The quarterly report from Ford illustrates the growing sentiment that manufacturing and, to a larger degree, the U.S. economy, is improving.
One metal recycler says that despite Ford’s good news, the company is only one buyer (albeit a larger one) of metals and that General Motors and Chrysler still are working to improve their fundamentals. “When we have another 17 million cars sold in a year, I will be more bullish,” he adds.
A macroeconomic issue that also is helping drive many metals has been the weak U.S. dollar. Additionally, more recyclers are saying that hedge funds and investment houses continue to play an active role in metals markets.
Copper also has seen fairly strong markets through the first quarter of 2010. But darker clouds are forming on the horizon. A key factor is the role China plays in the market. As the largest consumer of copper in the world, China has been the biggest market driver. And, while shipments to China are fairly good, the Chinese government continues to signal that it is looking to cool down its economy, meaning a potential decline in copper orders could happen later this year.
Even with questions about the role that financial houses are playing in the market, a recycler says, “fundamentals will always drive the market. Fundamentals do drive the price.”