Holding Pattern

Prices continue to be soft for most nonferrous metals, though lack of supply is a greater concern among scrap dealers.

After a fairly significant decline in pricing earlier this year for a number of nonferrous metals, including copper scrap and aluminum scrap, prices have stabilized as summer comes to a close. However, many scrap metal dealers say the bias in pricing is toward the downside during the next several months.

Market observers continue to look to the U.S. economy for clues as to which direction nonferrous metals markets may move through the end of 2013. The remaining uncertainty in the U.S. economy, particularly regarding the Federal Reserve’s next step, has kept prices from breaking out toward the upside.

Concerns about the possibility of the Federal Reserve pulling back its bond buying have created apprehension in metals markets. In anticipation of the change in fiscal policy, industrial metals markets have further softened. However, more recent economic figures, including a lackluster employment report and soft retail sales, may delay the expected changes to the Federal Reserve’s bond-buying policy and give some life to nonferrous metals markets.

While federal macroeconomic policies have a longer-term effect on markets for copper, aluminum and nickel/stainless, in the short term the challenge of finding enough material to meet orders is top of mind with scrap dealers. During the past six months, scrap metal dealers have said the lack of available scrap has created significant challenges.

Along with the uncertainty about the U.S. economy, many scrap metal dealers continue to watch China, which consumes 40 percent of the world’s copper.

Getting a handle on the relative health of the Chinese market continues to be a challenge for many scrap metal exporters. One market watcher says improving copper scrap orders to China have less to do with increased demand than with buyers in China who are covering supply shortages.

However, recent signs indicate that the Chinese economy may be improving. One Chinese government report, filed in early September, notes that the country’s industrial production has increased sharply in August compared with August 2012. Another report, published by China’s General Administration and Accounting Office, shows China’s exports increased 5.1 percent in August, topping expectations.

The aluminum sector, which also has been struggling over the past several quarters, is being affected by the continued oversupply of the metal on the global market. Even with a number of mill capacity shutdowns in the last year, too much aluminum capacity remains on the market.

Reflecting the longer-term structural challenges affecting aluminum, stocks on the London Metal Exchange stand at 5.35 million metric tons. While the figure is down slightly from the 5.5 million metric tons this summer, it is still so high that it likely will keep a lid on pricing.

Demand for aluminum, however, remains fairly healthy. The automotive sector remains one of the strong areas in the U.S. economy and a considerable consumer of aluminum. Despite this healthy end market, scrap recyclers say they do not see an overall upswing in aluminum pricing.