In a Holding Pattern

*Average monthly settlement price, cash buyer; U.S. dollars per metric ton. Source: London Metal Exchange, www.lme.com

This summer, dealers were concerned that prices for copper and aluminum scrap could tumble. Several dealers looked into the near-term future and saw the growing possibility of a double-dip recession. Another reason for the dimmer outlook was that scrap prices had climbed much higher than market conditions warranted. Although that possibility still exists, several scrap metal recyclers say they are less bearish about these nonferrous metals entering the last quarter of 2011.

After increasing to more than $4.50 per pound in early 2011, copper scrap has been seeing steady price declines. In mid-September prices for the metal began dropping swiftly, with more price declines possible.

Despite expectations that prices could continue to soften, a number of scrap metal recyclers are far from bleak in terms of their market outlooks. One scrap processor in the Great Lakes area says he is not having trouble finding homes for material. However, he does call the current market "interesting," though the fundamentals of the market are little changed. Supplies are plentiful, and his plant remains fairly busy, he says.

Many scrap dealers were sitting on large inventories when markets collapsed in late 2008, which resulted in large losses. Now, with concerns about a double-dip recession rising, many scrap dealers are carrying very little inventory.

Looking to China, opinions are mixed. Concern that China may cut its imports of copper scrap in an effort to cool down its economic growth has played a role in price declines throughout the past several months.

This concern regarding China and its copper scrap consumption is paired with a fairly bleak outlook for Europe. European bankers have been trying to put together a financial package to stave off a deteriorating economy throughout much of southern Europe. Until there is better clarity in this market, one scrap metal recycler says, copper pricing and demand is likely to be somewhat subdued.

A contrasting factor, on the supply side, has been the strikes at Freeport-McMoRan Copper & Gold Inc.'s copper mines in Indonesia and Peru. If the strikes continue for any length of time, they could create some potential shortages of virgin metal, which could help prop up copper scrap prices.

Aluminum markets appear to be in a better situation presently. Prices have been trending downward, but movement of aluminum scrap seems to be fairly robust and supplies are sufficient to meet orders, according to sources.

One larger consumer of aluminum scrap says an improving auto industry is offsetting sluggish markets in other sectors. "The bump in auto has no doubt helped aluminum," the buyer says. "Movement is good, and there is plenty of material out there. We haven't seen any problems. Aluminum is in decent shape right now."

According to a recent report by the consulting firm Harbor Intelligence, based in Laredo, Texas, the global aluminum market may be entering into a deficit and as many as six aluminum smelters in the United States may re-open to help meet new production demand.

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