Volatility: The Name of the Game

Most nonferrous metals are likely to struggle through the winter months. It also is likely that the volatility exhibited during the past several quarters will continue for the foreseeable future. The uncertain short-term market for nonferrous metals is casting a pall over the industry.

In response to significant fluctuations in prices for nonferrous metals such as copper, aluminum and stainless steel, many scrap metal recyclers are keeping minimal inventories on hand. As one scrap dealer says, prices may change by double-digit percentages within a day or so, making it difficult to maintain the spread on his industrial accounts.

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

Pricing for copper and aluminum has been trending downward through the fall, though aluminum seems to have more strength presently. While declines in price have been fairly sharp, especially for copper, a number of scrap metal recyclers say they feel the market is starting to stabilize. Material is moving as domestic consumers adopt a more aggressive purchasing pattern.

The economic challenges spreading throughout Europe are a key factor contributing to the overall environment, several scrap metal recyclers says. This uncertainty created by this situation is causing activity to slow, another scrap metal exporter says.

Magnifying the problem for copper is the slowdown in purchasing from China, the largest consumer of copper scrap. Earlier this fall, several exporters mentioned the growing difficulties in off-loading containers at Chinese ports. Partly in light of these logistics problems, prices have slumped through the fall, with several sources noting that copper prices on commodity exchanges fell from just below $4 per pound in late summer to below $3.40 per pound by the middle of November. Several sources say that prices could continue to drop to levels of less than the $3.20 per pound.

One West Coast exporter says the question is whether China's economy is coming in for a hard landing. His sense is that it will be a "softer landing," which could limit the downside for copper prices.

The exporter based on the West Coast adds that the slowing generation of copper scrap is counterbalancing the challenging export market. The result, he says, is that copper markets are moving sideways.

In the Northwest, another exporter says getting adequate bookings on container ships to deliver material to China has become an issue. "Orders are there; you just can't get the space you need," he says.

Along with the slower Chinese economy, another factor that has added to the sluggishness in exports to China is that the 2012 Lunar New Year will celebrated Jan. 23. Trade with China, including shipments and new orders, drops off significantly during the week-long holiday, which should further slow the movement of copper into the country during the next month.

Overall copper supplies are being constrained in other parts of the world. A strike at Freeport-McMoRan Copper in Indonesia, which began Sept. 15, continues into November, which is reducing the overall supply of copper.

For the domestic scrap metal industry, the winter season typically means a slowdown in generation, as well. Several scrap dealers say generation is down even more than is typical for this time of the year. "Peddler traffic is really slowing down, which is resulting in a drop in supply of most grades of nonferrous metals,"a scrap dealer in the East says.

A Midwestern scrap dealer agrees that the flow of material into his yard has slowed more than expected. He speculates that much of the obsolete material was cleaned out when prices were higher. As a result, "There seems to be more demand than supply from domestic sources," he says.

Despite the various macro economic challenges, several scrap metal dealers say copper and aluminum scrap are "hanging in there." The pickup in domestic manufacturing has helped keep the flow of material steady.

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