Nonferrous - A Macro Correction

Throughout the past year, many widely recycled nonferrous metals have enjoyed strong pricing despite the macro-economic issues that put pressure on markets for these same metals. While the U.S. economy struggles to regain its footing, a robust offshore market has kept prices for nonferrous scrap on an upward trajectory.

However, recent indicators are starting to weigh on prices. Soaring fuel prices are a concern for most businesses, and the high cost of transporting material is putting significant pressure on the market at present. Unrest in the Middle East also has contributed to the worrisome climate.

China’s economy, the growth of which has contributed to the strength seen in nonferrous metals markets, is showing signs of slowing.

The devastating earthquake and tsunami in Japan also will likely have repercussions for the scrap metals market, at least during the next several months. At press time it is still too early to determine the overall impact the catastrophe will have on nonferrous metals. One exporter based on the West Coast notes that several auto plants in Japan have closed down because of the earthquake. How long they will be down is still unknown. These closures will have an effect on demand for ferrous metals as well as for nonferrous metals, such as aluminum.

"According to a Bloomberg report, copper fell the most in a week in New York on the concern that Japanese carmakers may have to suspend production at their plants in China. "

The West Coast-based exporter says that on the day the earthquake hit, his firm received a number of calls from buyers indicating they wanted to cancel orders in light of the uncertainty the natural disaster would have on their businesses.

As of late March, copper already was reflecting this uncertainty. According to a Bloomberg report, copper fell the most in a week in New York on the concern that Japanese carmakers may have to suspend production at their plants in China.

Copper, which topped $10,000 per metric ton in February, has declined by nearly 10 percent since hitting this high watermark. An exporter says the decline jibes with the opinion, held by a number of copper dealers, that a correction was due. Whether the price for copper will decline further remains to be seen.

Additionally, several mining analysts say that potential inflation in China is creating downward pressure on the metal. And Bloomberg reports that imports of refined copper into China fell to a two-year low in February.

Despite the price corrections seen in many nonferrous metals markets, there are few concerns that this is the start of a bear market. One broker says that even a sharp drop should not hurt many scrap dealers because they are not carrying too much inventory.

However, on the London Metal Exchange, copper inventories have risen to the highest level since July 6, 2010, according to the Bloomberg report. Stockpiles are up 26 percent from Dec. 10, 2010, which marked the year’s low. China may not be restocking copper “to the extent many had previously expected,” according to a report from Morgan Stanley.

Material shortages for some nonferrous metals could help to keep floor prices high in the next few months, sources says.

While there likely will be a short-term dip in many metals in light of these macroeconomic concerns, a significant increase in demand for copper, aluminum and stainless steel, among other metals, also is likely as Japan eventually rebuilds following its natural disasters.

The modest global economic upswing has led to the generation of more scrap metals. However, many scrap dealers say industrial supply still lags behind where it needs to be to meet expected orders.

Lagging industrial generation could explain the apparent trend among scrap metal dealers toward expanding their retail recycling businesses.

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