Climbing higher

As of the third full week in May as I sit down to write this, the value of copper and aluminum on the COMEX and London Metal Exchange (LME) have been climbing to new highs.

Volatility has increased along with pricing, and a situation has developed whereby a contango exists between the current months and the future months on the COMEX as well as backwardation relative to COMEX (which U.S. scrap dealers commonly use to determine their pricing) versus the LME (which most European scrap buyers use) for copper.

A force majeure announcement from Rio Tinto regarding its alumina production in Australia could affect the availability of aluminum, while some recyclers say aluminum scrap already is in short supply. But speculation could be playing a leading role in the rapidly rising copper price.

New York-based metals analyst John Gross, publisher of “The Copper Journal,” refers to the price of copper in his May 10 edition as being “in the Twilight Zone.”

Gross says the contango position of copper on exchanges indicates the metal is “readily available” on the global market, writing, “We can only imagine someone with deep pockets is attempting to manage the market, but that seems a bit too farfetched—or does it?”

”Where the nonferrous markets will head over the immediate future is anybody’s guess, but recyclers likely are in for a bumpy ride.”

He draws a comparison to the copper bull market in 2005 and 2006, which led to a price plunge in 2008 that “was a sad chapter for just about everyone.”

Regarding current volatility, Gross says that while a repeat performance of what happened nearly two decades ago is not guaranteed, “To state the obvious, this is not good for the global copper industry.”

Aluminum also has been feeling the effects of the limited markets for Russian aluminum. After the U.S. and U.K. governments announced restrictions on the handling of Russian aluminum on the COMEX and LME in April, the LME saw some 424,000 metric tons of the metal added to its inventories on a single day, nearly doubling the warehoused volume to 904,000 metric tons, Gross says.

“Are the regulators asleep?” Gross asked. “To put this into perspective, using [the May 10] price of $1.14 per pound, we are looking at $1.066 billion worth of metal showing up. Who’s got that kind of money sitting in their checking account?”

A May 10 report from Julian Luk of Reuters quotes a trader who says the delivery unlikely was made to answer a spike in demand but that the contango situation indicates traders could have factored into aluminum’s price that such a dump of (possibly Russian origin) material was likely.

Where the nonferrous markets will head over the immediate future is anybody’s guess, but recyclers likely are in for a bumpy ride.