Purchasing

Robert J. (Bob) Garino

Last week’s earthquake just muddies the picture more for nonferrous metals
November 19, 2007

So, what’s with copper these days? OK, so now we’ve got earthquakes and aftershocks in Chile to deal with, but before that latest development, prices had fallen around 10% so far this month as inventory levels have grown—up nearly 80% since July and nearly 40% since early October… Commodity Exchange (Comex) unit of the New York Mercantile Exchange Comex cash copper lost more than 15¢ in recent days…so, the easy answer, of course, is that demand isn’t what many thought it would/should be and that fewer folks, it seemed, are sweating the supply side…in addition, latest trade data from China showed that imports of copper fell 5.6% between September and October. Still, as analyst Bill Adams at BaseMetals.com says this morning from London: “Given how nervous the market was follow the earthquake news last week, we are not entirely sure the copper market is comfortable being overly short” under 180,000 metric tons.

In case you’re wondering about aluminum…domestic primary aluminum production was reported at 2.1 million metric tons through October of this year, 11.2 % ahead of last year’s comparable figure…North American aluminum demand through August, meanwhile, was lower by 3.6% from a year earlier…latest mill order index for October (excluding canstock) was lower year-on-year, and in line with the average for the first nine months, according to Macquarie Bank--which sees orders increasing based mostly on a comparison of the very poor showing one year earlier…

Now, here’s a long-view look at the commodity markets as presented in the “Marketrends” column that Institute of Scrap Recycling Industry (ISRI) members will be reading their November/December 2007 issue of Scrap magazine:

Aluminum: After holding relatively steady through the first seven months of 2007, London Metal, Exchange (LME) aluminum prices have trended negative in the third quarter, hitting lows last recorded more than a year ago and posting prices below the 2006 average. Though global aluminum consumption, paced by China, remains exceptionally positive, new aluminum supply (again paced by China) has more than responded, moving the market toward a more balanced state. LME inventories have trended higher, highlighting the supply response. Nevertheless, aluminum’s medium-term global fundamental picture and rising cost structure hint at greater upside price potential from the levels posted in mid-October.

Copper: Following a rather uncertain and unsettled third quarter, the copper market appears to have regained its footing, with prices on the Comex and LME holding above their second- and third-quarter averages. Characterizing the global market are price volatility, solid demand outside the North American marketplace, lingering production problems, and ongoing labor issues that have disrupted the supply of concentrates and refined metal. Though most industry observers expect to see the market for copper trend toward surplus, continued raw material tightness and low aboveground stocks will influence the near term, thereby offsetting uncertain consumption prospects in the North American market.

Iron and Steel: The big picture for global steel points to another strong year. The International Iron and Steel Institute (IISI) based in Brussels expects apparent use to show a year-on-year increase of 6.8%. China again dominates steel consumption, accounting for more than one-third of global steel usage, while IISI expects North America to post a 4.9% year-on-year decline. The latest domestic reports confirm the above forecast, with ferrous scrap prices also showing early fourth-quarter weakness as finished steel prices face mixed sentiment along the supply chain. Most observers see the industry regaining upward momentum in the final two months of this year, however, and that momentum continuing into 2008.

Lead: Often considered the “forgotten metal” on the LME, lead has been the star performer this year, reaching all-time highs in the fourth quarter based on ongoing concentrate supply problems, less Chinese material available to Western consumers, low inventories, and fresh investor interest. Supply issues remain at the forefront, overshadowing both relatively flat Western World consumption concerns and strong Chinese lead demand. Consequently, lead’s upside potential remains intact. Some guess that 2007 might not be the high water mark for lead, despite assumptions that the global supply of primary and secondary lead will be more responsive going forward.

Nickel and Stainless Steel: LME nickel prices, languishing at 10-month lows in early August, firmed as the fourth quarter got underway despite LME inventories that are trending higher. Ongoing stainless steel production cuts, coupled with inventory drawdowns and product substitution, have severely dented demand for nickel units, thereby gradually moving the global market toward oversupply. Nevertheless, analysts expect to see demand recovery from stainless steel’s current cyclical downturn. That should boost prices for nickel--and scrap--prices as the year winds down. Nickel remains one of the more volatile LME-traded metals to date.

Paper and Recovered Fiber: Global pulp prices are experiencing a multiyear price run-up, with fourth quarter North American list prices for NBSK holding at $850/metric ton compared with January’s $790 price. Constructive fundamentals are providing support. Hardwood grades also moved up as the fourth quarter got underway. As for scrap paper, the fourth quarter finds exports of most bulk grades of recovered fiber continuing to drive market prices ever higher. Strong demand from China and India and fast-rising freight rates in Europe are adding to the North American demand growth from Asia. Consequently, domestic mills are looking at OCC (Old Corrugated Cardboard) containers prices last seen in 1995. ONP (old newspapers) and mixed paper values also have trended higher. Projections of new Chinese mill capacity coming on-stream are providing little relief. Total paperstock exports this year will easily surpass last year’s record 17.5 million short tons.

Posted by Robert J. (Bob) Garino on November 19, 2007 | Comments (6)