A Correction At Hand

Many nonferrous metals went through a period of declining prices in May. Volatility looks to be intensifying for many commodities, with a number of macro-economic concerns knocking down prices for a few nonferrous metals. At the end of May, many nonferrous scrap metals gave back some of the price gains they saw earlier this year.

Higher gas prices are suppressing the overall global economy. Meanwhile, continued strife throughout the Middle East caused concern in the economies of Southern Europe and Turkey. And, the government in China, the world’s second largest economy, has been signaling that it is taking measures to slow its economic growth.

A number of scrap metal recyclers say they see this downward dip in many nonferrous metals as a modest correction from the earlier surge and are not panicked, despite the significant declines in prices. According to sources, material is available and is moving well domestically and offshore.

Copper has been leading the decline in nonferrous metal pricing. Prices for copper have fallen from the $4.50-per-pound range to the $4-per-pound range. The metal had been on an upward arc through the first quarter of the year and may be giving back some of the gains it saw during that time.

One scrap dealer says copper had fallen to $3.94 per pound by mid-May and adds that further price declines may be seen.

Several scrap dealers say copper may be the victim of its own success. Earlier in the year, pricing for the metal had been climbing on strong orders from Chinese buyers. However, with more recent economic indicators pointing to a possible slowing down of the Chinese economy, copper prices have declined.

Other observers say China may be nearing an end to its credit tightening strategies, which had been one of the key reasons consumers of the material were reducing their copper scrap purchases. Chinese buyers are still placing ample copper orders, though one vendor says prices often lag behind those in the United States.

According to a published report, premiums for copper shipments to China have increased, which may indicate that China plans to re-enter the copper scrap market more aggressively.

A copper dealer says some investment houses have opted to scale back their positions in nonferrous metals as a result of climbing prices in the first quarter of the year. He adds that some investors moved out of these metals as concerns about the economic recovery flared up.

Despite the steep decline in pricing, several copper dealers say they are not concerned. Throughout the past several months, a growing number of scrap metal recyclers say they have felt the inevitability of a correction. Their bigger concern was the degree of the decline.

While scrap dealers still express uncertainty over the direction of nonferrous metals, the overall tone is still modestly optimistic over the longer term.

For instance, a scrap metal recycler says he knows of a number of smaller scrap yards that are inventorying more of their nonferrous metals, which may indicate that these dealers feel prices are near a short-term bottom.

Stainless steel scrap also has been undergoing downward pricing pressure throughout the past several months. One broker says there is a significant overcapacity of stainless steel production on the global market. Orders are becoming harder to come by, he adds, dramatically reversing the stainless steel market in the past several months.

He notes that one large European stainless steel producer has discontinued buying material from United States suppliers. He speculates, however, that longer-term increased consolidation and even mill closures may help to bring stainless supply and demand back into balance.

Aluminum displayed stable prices during May. In the Midwest, a scrap dealer says aluminum scrap is holding up fairly well compared with other nonferrous metals. One reason for the less volatile nature of the aluminum market, one market observer speculates, is that the metal did not enjoy the significant run-up several the other nonferrous metals saw during the past 12 months. Also promising is that aluminum price and movement have held up despite fairly large inventories of the metal on the London Metal Exchange.

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