Global Perspective

Every other month, Recycling Today Global Edition is sent out via e-mail to subscribers around the world. Readers of the publication are English-speaking secondary commodities processors and traders doing business in Europe, Asia, North America and wherever else scrap is traded.

The following includes a sample of commodity reports from a couple of the regular contributors to Recycling Today Global Edition. Each issue of the magazine contains a number of these reports from contributors with firsthand knowledge of scrap supply, demand and material flow patterns. These reports, from the Nov./Dec. 2010 issue, cover activity during the month of November. Those interested in subscribing to Recycling Today Global Edition can do so at www.RecyclingTodayGlobal.com. Those interested in contributing a regional market report on ferrous or nonferrous scrap, recovered fiber or plastic scrap can contact Kristin Smith of the Recycling Today Media group at ksmith@gie.net.

METALS INDUSTRY OVERVIEW >> GLOBAL
Robin Bhar, Metals Analyst with Credit Agricole CIB

The most dramatic impact metals are currently having is in the way of much higher prices. We look across the board at nonferrous metals, and prices for everything from copper to tin are a lot higher, accompanied by the weaker dollar against most major currencies.

Because commodities are priced in dollars, if the dollar weakens, commodity prices tend to be higher in dollar terms. That has been a major factor. In mid-October we had an interest rate increase in China, the first time in nearly three years. That took the market by surprise because the central bank in China was indicating it wouldn’t raise rates. But the Chinese central bank did raise rates because of a very strong economy that was becoming inflationary and in danger of overheating. That caused a bit of a correction in metal prices most recently, but the upward trend is still pretty much intact.

LME (London Metal Exchange) Week, which is a main industry event, was held in London in October. If you went to most of the meetings, cocktail parties and seminars, you couldn’t help but come away with a very bullish outlook, particularly for the rest of 2010 and most of 2011. Most participants were thinking along the lines of higher metal prices next year because of a weaker dollar [and] also because the global economy is strengthening, particularly with strength coming out of emerging markets or the developing world: China, India and Brazil. The industrializing countries continue to be the powerhouse for commodity markets, and industrialization and rapid development is sucking in a lot more materials. So it is very difficult to find any bears on the ground. Nine times out of 10, most everybody we spoke to was very positive, very bullish for higher prices, particularly focused on those metals where there are some concerns about supply or there are constraints on supply because of lack of investment in new mines—metals like copper and tin and, to a lesser extent, lead.

For aluminum and nickel, where the supply-demand balance is not as tight and where there is still oversupply and idle capacity, people were a lot less positive. In the case of nickel, people were pretty negative in their outlooks for [2011], with more supply coming through with the commissioning of new mines in New Caledonia and in Brazil for nickel. Generally I would say LME Week was very bullish in terms of its outlook, and I think that fed through to a lot of investor speculative buying on the metal exchange.

From what we have been hearing, the scrap situation in China, certainly for copper, does seem to be better from a supply standpoint now than in late summer and early fall of 2010. If anything, that means imports of refined metal could be lower for the remainder of 2010, which may be slightly more negative simply because there’s more scrap than the smelters can buy and that the fabricators can use as some of their raw material feed. So, if anything, that could displace some of the refined copper that they were having to buy simply because scrap was a lot tighter in the spring and summer of 2010. If anything, that’s eased a bit.

Whether it is going to ease for the medium to longer term or it is a temporary easing remains to be seen.

Other than that, I have to say we have seen a lot of investments and speculative buying of metals because of the weaker dollar and because of the fact that where do your fund managers put their money in order to get performance? There is a lot of uncertainty going forward. Commodities are seen as an asset class that has done well and that can do well because of the developing world demand because of supply constraints.

Metal prices right now are trading above fundamentally justified levels.

If there were to be some disappointments about growth or metals demand in November and December, it could feed into prompting a correction in prices. Robin Bhar can be contacted via e-mail at robin.bhar@ca-cib.com.

NONFERROUS SCRAP >> CHINA
Eric Deng, Ling Tong Metal, www.lingtongmetal.com

The copper rally was extended in early November as LME (London Metal Exchange) copper hit a fresh 27-month peak of $8,884 per ton. The Federal Reserve’s stimulus package may have caused skepticism over the value of the U.S. dollar. On the demand side, workers went on strike in Chile, the world's largest copper miner.

Shanghai copper futures also maintained the upward trend, with November-delivery copper touching a 31-month high of 68,970 yuan per ton on Tuesday, Nov. 9. Most investors in China are optimistic about the market outlook, but very few are willing to chase the prices higher. “Greater liquidity, expectations of inflation and recovering economies will continue to lead prices higher,” an investor in Nanhai says.

According to market research, most copper manufacturers and fabricators in Nanhai (Guangdong province, Southern China) prefer to buy enough scrap materials to replace what they’ve used and are reluctant to purchase too much. These people feel quite confused at these price levels and are not inclined to risk a loss. “For the most part, we stayed sidelined in October and turned to use our own stockpiles. Now, we have to buy some to maintain operations. But prices are so high and full of uncertainties,” a copper producer in Nanhai says.

Some traders are seen to make purchases, but the volume is not large. These people say they buy tentatively and, if copper corrects further, they will purchase more. Since copper broke the level $8,000, most copper consumers and traders started to use their own stockpiles and stayed away from the market. But the more cautious they are, the higher the prices seem to move.

Also, importers, processors and recyclers have become quite frustrated with this price surge. First of all, in light of strong LME prices, many have already sharply reduced their orders for copper scrap materials from overseas. If LME prices continue to outpace Shanghai prices, there will be nothing left in their yards or warehouses.

Thus, the whole physical market is in short supply at present, and some recyclers in China are facing closures. Yet they are all bullish about the market exhibiting rising prices, so they have to be very cautious in making purchases.

Some domestic importers are trying to re-export their copper scrap materials to other Asian countries such as Korea, Japan, Singapore and India. That’s largely because they cannot sell the scrap materials at better levels in the domestic market as of early November. The copper price in China has fallen far behind overseas prices.

Some recyclers have chosen to sell part of their stockpiles at this time. The short-term upside will be quite limited, but they sold to lock in profits and cover funds. “Isn’t it better to sell to take profits and prepare for better levels to buy in?” a Nanhai recycler asks.

Many insiders forecast copper will continue the uptrend and could soon test the record high of $8,940 per ton. The market tightness, sufficient liquidity and improving global demand will push the price higher, they say. “With a low interest-rate environment and a weak dollar, I expect copper will break $10,000 per ton,” a market analyst in Nanhai says. “The correction is due, but the downside is limited.”

But some think copper will fall and the uptrend could last at most to mid-November. First, prices of agricultural products and bulk commodities are surging these days as a large amount of hot money flows into market.

Eric Deng of metals news and pricing service Ling Tong Metal can be contacted via e-mail at tungshuzhi@hotmail.com.