Waiting for a turnaround

With depressed prices for both aluminum and copper scrap in recent months, nonferrous brokers seem to be focused on preventing further losses. Traders say scrap processors and consumers alike are paying closer attention to what’s tied up in inventory, and, sometimes, also what isn’t. 

 

In the aluminum sector, scrap generation has slowed in recent weeks, according to Matt Kripke, president of the nonferrous scrap brokerage business Kripke Enterprises, based in Toledo, Ohio.

 

Kripke says falling aluminum premiums combined with an apparent oversupply of material led some dealers to begin taking orders as they received them earlier in the year rather than wait for prices to increase.

 

“I feel that people have been trying to move everything that they have,” he says. The sell-off seemed to start in February, he says, when the U.S. Midwest aluminum premium began its descent from 23 cents to 9 cents in early June. As this happened, many dealers realized it was better to take orders instead of waiting for better prices that didn’t readily materialize.

 

“Once they figured that out, they started selling aggressively into it, thinking the flow [of metal] was going to continue,” he says. However, that thinking proved to be misleading, he adds, leaving some dealers committed to orders and without supply. 

 

Now, he says, “consumers are being forced to pay more for a few grades of [aluminum],” leading to tighter spreads relative to Midwest transaction prices. Furthermore, demand seems to have either picked up in recent weeks or to have reached a level more in line with supply.

 

“I feel we’re at a point where you have more upside potential than downside risk,” Kripke says. “Three months ago people thought there was more downside risk.”

 

Stephen Moss, vice president of the brokerage firm Stanton A. Moss Inc., Bryn Mawr, Pennsylvania, says he believes some yards “can’t justify selling at these prices.” But, he observes that domestic rolling mills have raised their prices.

 

Brokers and traders in the copper scrap also have had their share of challenges. Brian Shine, president of Manitoba Corp., based in Buffalo, New York, says supply and demand seem to be in balance at the moment, even if traded volumes are lower than they’ve been.

 

Shine says May was his company’s best month in terms of shipping orders over the last several months. But, in June, he says, mills seem to have stepped back from purchases.

 

“It appears people are reigning in their purchases, so that pushes through to the supply side as well,” he says. It also doesn’t appear that dealers are holding material, Shine observes, but rather are turning it around as it’s generated. However, Shine also observes that the current market seems inconsistent, with terminal market price increases not necessarily triggering more calls. He says many scrap yards may not be in a position to hold copper, “so they are turning it quickly for cash flow purposes.”

 

Shine says, with quieter export markets at the moment, North American consumers seem to have their fill of scrap. Buying has slowed as consumers may believe they can afford to wait to purchase material when it’s needed.