Preliminary signs indicate that prices for many nonferrous metals may be strengthening.
It may not be the return of booming markets for nonferrous metals seen last decade, but preliminary signs indicate that prices for many nonferrous metals may be strengthening after seesawing through 2012.
Copper prices have been gradually improving in the first month of the year, with prices as of late January topping figures last seen in October 2012. The upward climb in pricing is being attributed to gradually improving economies in the United States and China.
Scrap dealers in the U.S. are looking in the direction of China and wondering what role the country’s copper consumers will play in the market this year. In early February orders dropped off in anticipation of the Lunar New Year, which was Feb. 10. By the end of February, once business resumed after the holiday, scrap metal exporters in the United States likely will have a better picture of where the markets will be moving through the first half of 2013.
Consensus appears to be growing that the global economy will show modest improvement over the first six months of the year. A number of metals analysts say they expect to see copper trading in a narrower range in the near term. A recent survey forecasts a slight surplus of copper on the market, though not great enough to drive down prices.
Reflecting a more bullish tone, in a recent interview with “The Metals Report,” Kevin Puil, a portfolio manager based in San Francisco with Malcolm Gissen & Associates, an independent investment advisory firm, said fundamentals for copper remain highly favorable. He said he expected to see steady-to-strong demand for most base metals, especially copper, over the short and long term.
In the interview, Puil said industrialization and urbanization in Brazil, Russia, India and China (the BRIC nations) is driving markets for many metals. He added that copper miners are having a difficult time keeping up with forecasted demand, which could lead to copper prices topping $4 per pound this year.
Many scrap metal recyclers say demand appears to be improving. Orders from domestic and offshore consumers are enough to keep the flow of material steady. The improvement comes after a fairly quiet first half of January.
A number of sources say their phones were very quiet in early January but started to ring by the middle of the month. A scrap metal dealer based in the Midwest says January was a month for restocking, but he adds that February doesn’t appear to be following suit. “The phone started picking up over the past few weeks (late January) on the buy side. This improvement happened despite our industrial accounts, which remain soft.” Despite the modest dip in demand, he terms nonferrous markets “good.” He reports that he is seeing an increase in business overall.
While some say the short- and mid-term outlook for copper scrap is bullish, several other processors and brokers are hedging their outlooks, saying that after a bit of a run during the first month of the year the market appeared to be cooling somewhat at the start of February.
While prices have been moving to the upside, in January the familiar complaint was that the generation of scrap continued to be limited. Sources in different regions of the country say peddler and scale traffic has seen a modest upswing, but industrial generation has not seen a pop during the first month of the year.
A source in the eastern U.S. says that while generation is still a problem, he feels the markets are starting to open up. When China re-enters the market after the Lunar New Year, the copper market will gain strength, he predicts. Chinese consumption will be a key to a sustained improvement in copper and copper scrap markets.
While the economies of China and the U.S. offer positive indicators for scrap metal recyclers, continued economic problems in Europe could act as an anchor for copper, as well as for aluminum, stainless steel and other metals. With more problems cropping up in Spain and Italy, some traders are reportedly selling off their positions in light of fears that the economies of some European countries will dampen the rally for these metals.
Aluminum markets have seen less of a rally relative to copper, though indications are that, longer-term, aluminum could benefit from the uptick in automobile manufacturing.
Supporting the positive outlook for aluminum, the Arlington, Va.-based Aluminum Association, quoting from a recent report from Davenport & Co., notes that aluminum prices on the London Metal Exchange increased to $2,085 per metric ton by the close of January, a modest increase from prices earlier in the month.
The research report finds that numerous economic indicators for the fourth quarter of 2012 were somewhat bearish, which would point to a possibility of a decline in prices. However, the report adds that the manufacturing sector is improving, which should contribute strength to nonferrous metals.
Supporting the strengthening in the manufacturing sector, the Institute for Supply Management (ISM) Purchasing Manager Index (PMI) increased for both the United States and Europe, which should boost confidence and strengthen nonferrous metals markets going forward.