Commodities come under pressure on Europe crisis

For the week ending Friday, May 11th

Commodity prices came under pressure again this week despite a relatively light U.S. economic calendar. With choppy trading attributed to the fragile economic situation in Europe and signs of slower growth in China, the Dow Jones/UBS Commodity Futures Index looked set to drop by over 1 percent for the week.

At the start of the week, base metal prices opened softer in London after the bank holiday on Monday, as LME official 3-mo. copper dropped to $8,133/mt on Tuesday morning and hovered around the $8,000/mt mark for much of the remainder of the week. LME official 3-mo. aluminum prices followed a similar trend, dipping to $2,027/mt on Wednesday morning.

While somewhat better than expected weekly unemployment claims and consumer sentiment figures in the U.S. provided a measure of support late in the week, the positive U.S. numbers were offset by slower reported growth of Chinese imports and industrial production in April. Continuing the downward trend, crude oil prices dipped below $98/bbl in the second half of the week as gold futures retreated below $1,590/to. On Wall Street, the Dow Industrials posted three consecutive days of losses to open the week, but stock prices stabilized late in the week.

On Friday, Reuters reports that LME official 3-mo. copper prices fell to $7,995/mt this morning as Chinese unwrought copper imports reportedly decreased nearly 19% in April to 375,000 mt and the pace of industrial output in China slowed to 9.3% last month. The other base metals also started the day in negative territory, including LME official 3-mo. asking prices for aluminum ($2,031.50/mt), nickel ($17,060/mt), zinc ($1,932/mt), lead ($2,065/mt) and tin ($20,325/mt).

In New York, markets got off to a bumpy start today but retraced some of the early losses after the reported 0.2% drop in U.S. finished goods prices in April and preliminary uptick in consumer sentiment in May. After having traded as low as $3.6165/lb. earlier in the session, by mid-day COMEX July copper was back up to $3.65/lb. but still off around 4 cents from yesterday’s close. Following reports of increased oil production by OPEC members, NYMEX crude oil for June delivery fell to around $96/bbl – down $10 a barrel since the start of the month. Stocks on Wall Street were treading water in early afternoon trading while the yield on 10-year Treasurys dipped to 1.85% and the Euro reversed course, easing to $1.292.

Macro news…
Those falling oil and energy prices contributed to a drop in finished goods prices last month, according to figures released this morning from the Bureau of Labor Statistics. BLS reports that producer prices decreased 0.2% month-on-month in April, following unchanged price levels in March. Excluding food and energy, producer prices advanced just 0.2%, another indicator that inflation remains in check for now.Other positive economic news in the U.S. this week included an unexpected increase in consumer sentiment to 77.8 according the preliminary May reading from the University of Michigan – reportedly the highest reading since the recession started.

And while the U.S. trade deficit expanded to $51.8 billion in March, exports from the U.S. jumped nearly 3% higher for the month to $186.8 billion (imports grew at a faster rate, resulting in the wider trade deficit). But given the widespread reports of slower or non-existent growth in other parts of the world, the ramp up in overseas demand for U.S. goods is a positive signal.

Even more encouraging from our industry’s perspective was the turnaround in global demand for U.S.scrap in March. Following six months of decline, the latest trade figures from the Census Bureau show that the FAS value of all U.S. scrap export shipments increased 11% in March to over $2.8 billion. And the monthly increase wasn’t just a reflection of better prices as the volume of scrap exports also grew 11% to 4.47 million metric tons. The monthly gain largely reflected improved demand in Asia as scrap exports increased significantly to China ($944 million, +8%), South Korea ($218 million, +15%), Taiwan ($179 million, +52%), India ($113 million, +57%) and Vietnam ($21 million, +32%).

Ferrous…
Contributing to the overall increase in scrap shipments in March, U.S. ferrous scrap exports jumped 15% by value to $878 million and 16% by volume to 2.05 million mt as improved demand in Asia more than offset a lighter movement to Turkey. After having increased to over 600,000 mt in February, ferrous scrap trade with Turkey cooled to 562,000 mt valued at $237 million in March, although Turkey remained by far the largest single destination for U.S. ferrous scrap. Other key destinations in March included South Korea ($148 million), Taiwan ($137 million), China ($130 million) and India ($57 million).

For the year to date (Jan-Mar), ferrous scrap exports also increased 11% year-over-year to 5.15 million mt valued at $2.2 billion. Ferrous scrap prices have reportedly been in a holding pattern as of late, although industry reports indicate somewhat more pressure on prime grades than obsolete. Early this week, Scrap Price Bulletin was indicating unchanged composite prices for No. 1 HMS and shredded of $399.17/gt and $436.17/gt, respectively, with obsolete prices virtually unchanged from one year ago. Similarly, The Steel Index’s reference price for shredded was unchanged at $436/lt delivered Midwest. And while AK Steel announced a $40/ton price hike this week, sheet prices reportedly remain under pressure as Platts lowered its midpoint HRC price assessment to $665/st ex-works, down $10 a ton from late last week. Competition from steel imports has widely been cited as keeping a lid on prices. In the U.S., the American Iron and Steel Institute reported that raw steel production declined 1.7% from the preceding week to 1.963 million net tons as the capacity utilization rate dipped to 79.4%. 

Nonferrous…
Nonferrous scrap exports from the U.S. also registered impressive gains in March, according to the Census Bureau figures. Leading the pack in terms of value, copper and copper alloy scrap shipments in March advanced 6% to $419 million and edged higher in terms of volume to 107,000 metric tons. 

Once again, China was the dominant export destination for U.S. copper scrap in March, accounting for $278 million – or 66% of the copper scrap total, of the monthly export sales. Other leading destination for copper scrap included Canada $26.7 million, Germany $21 million, Belgium $20 million, and South Korea $13.6 million. For the year-to-date, copper scrap exports are up 10% by volume to 307,000 mt and 5% by value to nearly $1.2 billion.

U.S. aluminum scrap exports grew even faster in March, climbing 11% percent higher to $337 million. And while year-to-date aluminum scrap exports (including UBCs and Remelt Scrap Ingot) increased by volume to 526,000 mt, by value scrap shipments of the light metal declined 6% to $908 million, reflecting this year’s more challenging price environment.

This week, LME aluminum prices edged lower with LME 3-mo. aluminum reportedly changing hands late in the day today around $2,045/mt. Secondary aluminum prices were also reported in a slightly lower price range this week with old sheet indicated around 71-73 cents, old cast mostly around 73 to 75 cents, and MLC in the 75-78 cent price range. As of mid-week, Platts was reporting fairly steady No. 1 copper scrap spreads with Bare Bright again listed at 5 cents under COMEX, burnt No. 1 at 20 cents under (from 22 cents last week), while No. 2 reportedly moved out to 40 cents under (from 36 cents last week). 

Editor’s note: We’ll take a look at recovered paper and plastic scrap exports in next week’s report.

This Week's Quote: “By the time a man realizes that maybe his father was right, he usually has a son who thinks he's wrong.” -- Charles Wadsworth

This Week’s Story: Three mothers were sitting around comparing notes on their exemplary offspring. "There never was a daughter more devoted than my Alice," said Mrs. Davis with a sniff. "Every summer she takes me to the Catskills for a week, and every winter we spend a week at Delray Beach." "That's nothing compared to what my Anna does for me," declared Mrs. Jones proudly. "Every winter she treats me to two weeks in Miami, and in the summer two weeks in the Hamptons, in my own private guest house."

Mrs. Smith sat back with a proud smile. "Nobody loves her mother like my Jackie does, nobody." "So what does she do?" asked the two women, turning to her. "Three times a week she gets into a cab, goes to the best psychiatrist in the city, and pays him a hundred and fifty dollars an hour - just to talk about me!"