Nonferrous Department

Mixed Signals

Copper markets, which tumbled at the end of last year, have been experiencing a resurgence throughout the past several months. Demand has picked up, and prices, though far lower than they were at this time last year, have displayed upward strength.

Many people now are asking whether this price increase is a leading indicator of an economic recovery or if the market is set to drop back down as the global economy works its way through a "W" shaped recovery.

During the recent Institute of Scrap Recycling Industries Inc. (ISRI) 2009 Annual Convention, speakers offered mixed signals on the commodity’s short-term outlook. Neil Buxton, who spoke at the event’s "Copper Spotlight" session, noted that many of the purchases that had propelled the recent price increases had come to an end.

By the middle of May, there were growing indications that the run-up in copper prices was easing. One news report notes that China, which had fueled the run in prices, was stockpiling copper while prices were lower.

Domestically, the overriding sentiment for copper seems to be that scrap generation and demand are down, keeping the market in balance, albeit at low levels.

With housing starts still a big problem area in the United States, domestic demand likely will not see an increase in the near future.

Aluminum markets, surprisingly, have shown some bounce, though it may be a false indicator. Despite wisps of a recovery, some speculators say they feel aluminum pricing has moved up too far while inventory levels have remained too high, which likely will bring on a backward adjustment.

Buying by offshore consumers has helped to drive the aluminum market. Despite the improvement, some industry observers say they see a large oversupply of aluminum on the market, which is probably keeping a lid on price hikes. According to one report, aluminum stocks are at record high levels of more than 4 million metric tons.

The second quarter is typically the busiest time of the year for downstream aluminum products, and there is little indication that demand is strong enough to eat away at the large aluminum inventory levels.

Aluminum is in oversupply, despite many aluminum producers having slashed their production in line with demand.

The bearish short-term outlook for aluminum has been exacerbated by the actions of many of the top global aluminum producers. Norsk Hydro, the third largest aluminum producer in Europe, has indicated that further cuts in aluminum production will likely take place through the quarter. Other large global aluminum companies—the U.S.’s Alcoa and Russia’s Rusal—also have been slashing production to balance supply and demand.

However, as the recent rally in aluminum prices has taken hold, mills have increased their production, which has added more material to the market. Reports also indicate that Chinese aluminum smelters have restarted their lines, which is further adding to the global surplus of aluminum.

The aluminum market is saddled with the ongoing problems of the auto industry. With the transportation sector making up a significant portion of the metals consuming markets, the problems with U.S. automakers General Motors and Chrysler, specifically, and the overall health of the global auto manufacturing industry in general, have many recyclers worried about contracting demand from this consuming market.

Aleris, which is presently in bankruptcy protection, is expected to idle its secondary smelters in light of the announced automobile production closures this summer. One news report notes that Aleris’ Coldwater, Mich., smelter may be taken
offline as a result of the decline in auto production.

Nickel also has seen strength in pricing, while inventory levels are considered to be in an oversupply situation.