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For the week ending Friday, February 17th

Base metal prices trended downward for much of the week as Eurozone concerns and signs of short-term liquidity problems in China more than offset positive U.S. economic news. After having started the week out at $8,530/mt, official LME 3-mo. copper was down to $8,220/mt by Thursday morning. Other metals followed suit, including LME official 3-mo. aluminum, which dipped to $2,164/mt yesterday morning as the Euro briefly fell below $1.30. But energy prices continued to strengthen this week, with NYMEX crude oil for Apr delivery up over $100 for most of the week as reports of Iran’s threats to cut off exports to a handful of European countries provided some support. Stocks responded more positively to the U.S. economic news, including the drop in weekly initial unemployment claims to a 4 year low, as the Dow Industrials climbed above the 12,900 mark late in the week. 

On Friday, positive indications on Greece’s bailout package negotiations provided some support this morning but by mid-day much of that support had vanished. This afternoon, COMEX March copper was down around 7 cents to $3.72/lb. Although crude oil prices firmed to $103/bbl, gold futures, which lacked direction for much of the week, dropped to $1,725/to as risk appetites shifted. On Wall Street stocks were holding on to modest gains, with the Dow Industrials up around 0.5% while the Nasdaq and S&P 500 were mixed following gains in most of the major European and Asian bourses earlier in the day.

Macro news… 
Agreement on a second bailout for Greece was looking more likely late in the week. The Wall Street Journal reports that German officials have dropped their plans to withhold a portion of the bailout funds in order to put more pressure on Greece, while the European Central Bank announced it would swap old Greek debt for new once the bailout is worked out. But worries about Europe aren’t likely to go away any time soon given the signs of economic contraction and rising unemployment in a growing list of countries.

Thankfully the news out of the U.S. this week was more encouraging. Although at first glance the latest numbers on industrial production (0.0% in Jan) appeared less than impressive, the weakness was due in good measure to a slowdown in utilities output as mild winter temperatures dampened heating demand. But manufacturing output increased a healthy 0.7% month-on-month (following a 1.5% gain in December) and 4.5% as compared to January 2011, while manufacturing capacity utilization improved to 77%, positive news for the scrap industry. The Fed reports that manufacturing output increased by more than 1% across a range of goods including fabricated metal products, machinery, appliances, and computer & electronic products, while production of motor vehicles and parts jumped 6.8% last month. 

Other manufacturing numbers also showed signs of improvement as the Philadelphia Fed reported an increase in its regional index from 7.3 in January to 10.2 this month. Meanwhile, inflation reportedly remains under control, with consumer and producer prices edging 0.2% and 0.1% higher in January, respectively, while initial claims for unemployment benefits continue to drop, falling to 348,000 for the week ending February 11 -- the lowest level in four years. And while the housing market remains a far, far cry from where it was pre-recession, recent figures on housing starts (699,000 in Jan) and building permits (676,000) do show a steadily improving picture as of late. All in all, things are looking up. 

Ferrous…

According to the latest estimates from the American Iron and Steel Institute, domestic raw steel production increased for the week ending February 11, 2012 to 1.929 million net tons, up 1.2% from the preceding week and 8.4% higher than one year ago as the capacity utilization rate improved to 78.1%. However, hot-rolled coil prices continued to show signs of weakness this week as Platts reduced its midpoint HRC assessment by $12.50/ton to $725/st ex-works Indiana. In addition, Severstal North America reportedly announced that it is rescinding its Jan 13 price hike and that the new base price for HRC spot orders would be $740/st ex-works ($850/st for cold-rolled). Import competition has been widely cited as a source of downward pressure on domestic prices.

While Scrap Price Bulletin was indicating somewhat softer ferrous scrap prices early in the week, including for No. 1 HMS ($400.17/gt) and shredded ($437.50/gt), by week’s end there were indications that prices were holding firm on the back of improving export demand. The Steel Index raised its shredded reference price this week by $4/ton to $443/lt delivered Midwest while noting improving export demand from Asian container markets. Overseas ferrous scrap demand definitely picked up in 2011 according to the latest Census Bureau trade figures. For 2011 as a whole, U.S. ferrous scrap exports jumped 21% higher by volume to nearly 23.7 million mt, while by value ferrous scrap shipments surged by 40% to $10.4 billion, despite a drop-off in shipments in December to $654 million. Turkey was again the largest overseas customer for U.S. ferrous in 2011 at $2.4 billion, followed by China $2.08 billion, Taiwan $1.4 billion, South Korea $1.3 billion and India $493 million. By grade, shredded shipments were up 13% by volume to nearly 8.4 million mt while loadings of No. 1 HMS advanced 43% to over 8 million mt.

Nonferrous…
The rise in nonferrous scrap exports was no less impressive last year, including the surge in the value of copper scrap exports. To put things in perspective, the value of copper scrap shipments from the U.S. in 1998 was around $400 million. By last year that figure had jumped to nearly $5 billion ($4.98 billion to be precise), a 40% increase from 2010. And that’s just copper.

U.S. aluminum scrap exports (including UBC and RSI) climbed 27% higher by value to over $4 billion in 2011, nickel scrap shipments were up 34% to $128 million, and zinc scrap exports advanced 10% to $94 million. Even stainless steel scrap and lead scrap exports, which fell in volume, managed to increase in value to $958 million (+2%) and $37 million (+9%), respectively, as prices rose, according to Census.

Citing the unexpected strength in prices so far this year, Deutsche Bank reportedly raised its 2012 average nonferrous price forecasts this week as follows:

Copper $8,600/mt (up $7,350/mt previously)
Aluminum $2,325/mt (up from $2,138/mt)
Lead $2,200/mt (up from $2,138/mt)
Nickel $22,500/mt (up from $18,625/mt)
Tin $25,500/mt (up from $20,625/mt)
Zinc $2,250/mt (up from $2,038/mt).

That price strength was not in evidence this week as Reuters reports that late in the day Friday LME 3-mocopper was down to $8,186/mt, 3-mo. aluminum was down to $2,154/mt and 3-mo. nickel dropped to $19,580/mt as investors remain cautious. In an interview with Dow Jones, Norsk Hydro’s chief executive, Svein Richard Brandtzaeg, indicated he expects further aluminum production cuts in the West, but not in China, where market conditions are expected to stay close to balanced. A recent report from CRU indicates that, following 258,000 mt deficit in 2011, the Chinese primary aluminum market swung to a 181,000 mt surplus in January. Deliverable stock numbers from the Shanghai Futures Exchange indicate that aluminum stocks there have been rising recently as well.

This week, secondary aluminum prices in the U.S. were reportedly holding pretty firm, with old sheet and cast mostly indicated in the low to mid 70 cent range, siding in a similar range around 73-75 cents, and MLC mostly in the upper 70’s. As of mid-week, Platts was reporting that copper scrap spreads had come in somewhat, with Bare Bright indicated at 8 cents under COMEX, burnt No. 1 at 21 cents under and No. 2 at 40 cents under, while AMM had brass ingot makers’ scrap prices pegged at 225-230 cents for radiators, 222-227 cents for yellow brass solids and 200-205 cents for turnings.
Recovered Paper and Fiber…

It was a banner year for recovered paper exports from the U.S. as well, with the total value of export shipments increasing to $3.8 billion in 2011, up 14% from 2010 and more than double the 2005 total. Last year’s biggest customers for recovered paper and fiber shipments included China $2.28 billion, Mexico $315 million, India $302 million, South Korea $223 million and Canada $194 million.

This Week’s Quote: “Old age is fifteen years older than I am.” -- Oliver Wendell Holmes

This Week’s Story: A young boy enters a barber shop and the barber whispers to his customer, “This is the dumbest kid in the world. Watch while I prove it to you.” 

The barber puts a dollar bill in one hand and two quarters in the other, then calls the boy over and asks, “Which do you want, son?” The boy takes the quarters and leaves the dollar. “What did I tell you?” said the barber, “That kid never learns!”

Later, when the customer leaves, he sees the same young boy coming out of the ice cream store and says, “Hey, son! May I ask you a question? Why did you take the quarters instead of the dollar bill?” The boy licked his cone and replied, “Because the day I take the dollar, the game's over!”