Spring has not brought welcome news for many nonferrous metals dealers, with many reports forecasting little improvement in markets for most nonferrous metals in the next several months.
Multiple reports indicate that copper stocks on the London Metal Exchange (LME) are increasing on an almost daily basis. Adding to oversupply concerns, stocks on the Shanghai Futures Exchange increased by 3.36 percent in late March to reach roughly 250,000 tons. While domestic orders for copper scrap are “decent,” according to one wire chopper operator, it isn’t enough to offset the increased supply of copper cathode material on the market. New copper cathode capacity has increased during the past 12 months, reducing demand for copper scrap and softening prices for this material.
This new copper production capacity is coming online despite the bearish general economic news from North America, Europe and China. Figures from the U.S. Institute of Supply Management show that the U.S. manufacturing sector expanded in March for the fourth consecutive month, and the overall economy grew for the 46th consecutive month. However, the March Purchasing Manager Index (PMI), which stands at 51.3 percent, decreased from the previous month’s 54.2 percent, indicating slower expansion of the manufacturing sector in the U.S.
The situation is more pessimistic throughout Europe, with manufacturing continuing to contract in many regions. Even China, whose consumption has been a key driver for a number of metals, has been slowing as of late. China’s manufacturing activity improved in March, though not as much as expected. The manufacturing Purchasing Managers' Index (PMI) rose to 50.9 in March from February’s 50.1, slightly lower than the estimated 51 forecasted by a Dow Jones Newswires survey.
Despite the current oversupply situation, news points to a potential shortage in the near future. Labor problems at one of Codelco’s copper mines shut down production for several days in March. More recently, labor problems at ports in Chile, a major copper producing country, have made it more difficult to ship copper out of the country. Reuters reports that Chilean government officials say the strike is cutting copper exports by around 9,000 metric tons per day. If this continues, it could create a floor on copper prices and limit the oversupply situation.
Copper is not the only grade struggling; most nonferrous grades are feeling downward pressure. A scrap dealer in the Midwest says aluminum also has been trending downward “as fundamentals are starting to kick in.” Supply is healthy but there doesn’t appear to be much of a push by many consumers that could help drive prices forward.
One source notes that aluminum prices on the LME have been declining pretty steadily since the second half of February, when the price reached roughly $2,100 per metric ton. As of April, the price fell to less than $1,850 per metric ton.
One of the biggest recent concerns has been the aggressive enforcement of quality specifications by Chinese customs officials. The restriction on imports is not only causing problems for scrap dealers in the U.S., but several sources also say that a number of consumers in China are struggling to get enough material to meet their needs.