ANYBODY’S GUESS
Markets for nonferrous grades continue to defy prognosticators, analysts and scrap dealers. Even as prices have increased sharply during the past several months, the direction of the market is still uncertain.
In contacting several larger handlers of nonferrous scrap, many say they have quit trying to comprehend the market and instead are focused on keeping a tight rein on the movement of material.
The price of copper scrap, which crested above the $2.50-per-pound level, has seen some extremely sharp declines followed by sharp upswings, sometimes on the same day. Some handlers of the material are blaming the pricing volatility on fund managers and "new money," who find commodity trading to be a viable investment tool and are increasingly responsible for the movement of copper scrap.
Aluminum prices, which have been moving upward throughout the past year, have been trending downward during the second half of May and through the first half of June. Although still at relatively high prices, the lack of clarity about where the market is moving is creating anxiety in the market.
Fundamentally, copper markets remain strong domestically and offshore. One large handler of copper scrap says that manic buying by China has abated a bit, which is helping domestic processors to obtain more material. Throughout the past year, as Chinese buyers sought greater amounts of copper scrap to fulfill their needs, they were offering higher process for wire than domestic wire choppers could hope to pay. The result was less wire available for domestic buyers.
However, with Chinese companies becoming a bit more cautious in bidding for material, purchase prices for wire have declined, and domestic buyers are finding a much more competitive environment.
Aluminum scrap prices also have been trending downward throughout the first half of June. However, as the market for nonferrous metals has become more volatile, some recyclers say that it is hard to determine whether there is a particular trend taking place.
Several scrap recyclers say that a number of consumers have indicated that they were pulling back their orders for June and/or July. Meanwhile, scrap recyclers who loaded up on aluminum scrap in anticipation of further price increases were caught with higher inventories. This helped to soften markets for aluminum scrap.
The leading factor creating some ripples in the nonferrous market has been indications that Chinese buyers, who have helped drive prices for many grades to record highs, are becoming more selective with their purchases.
In the past, the country’s insatiable demand for nonferrous grades resulted in Chinese buyers paying far greater prices for scrap metals than domestic buyers were able to pay. However, as these same Chinese buyers are eschewing some lower grades of copper and aluminum scrap, supplies have loosened up a bit.
Fund traders, who also have become more active participants in the commodity trading environment during the past several years, also could be reducing their involvement in the market.
While some scrap recyclers see the possibility of a softening metal market, perhaps even a short-term stable plateau, one school of thought suggests that fund managers may look to put new money in other investment vehicles. As a result, the nonferrous markets could return to being driven by supply and demand conditions within the particular markets rather than by short-term financial positions.
Adding to these concerns, some scrap dealers report that payments for their materials, whether shipped domestically or offshore, are being stretched out from 30 days to 45 days or longer in some cases. With prices for aluminum and copper scrap far greater than traditional record prices, the extension of payments adds strain to the financial well being of many scrap processors, especially those that do not have deep pockets.
One handler of nonferrous scrap in the Western United States says that the risk factor is high right now.
"No one likes it with the market so uncertain. You have to keep higher margins with all the risks," he says.
(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at www.RecyclingToday.com.)
Explore the July 2006 Issue
Check out more from this issue and find your next story to read.
Latest from Recycling Today
- ReElement, Posco partner to develop rare earth, magnet supply chain
- Comau to take part in EU’s Reinforce project
- Sustainable packaging: How do we get there?
- ReMA accepts Lifetime Achievement nominations
- ExxonMobil will add to chemical recycling capacity
- ESAB unveils new cutting torch models
- Celsa UK assets sold to Czech investment fund
- EPA releases ‘National Strategy to Prevent Plastic Pollution’