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For the week ending Friday, January 13th
After getting off to a slow start on Monday, commodity prices picked up steam as the week progressed, with copper reaching 2-month highs above $8,000/mt on Thursday. Despite lackluster U.S. economic figures, commodities received a boost from encouraging signs from China. Shifts in index fund balances were also widely credited as being supportive. In London, LME official 3-mo. copper prices dipped to $7,508/mt on Monday morning but were up 6% as of Thursday morning to $7,961/mt.

Aluminum prices tracked higher, with LME official 3-mo. aluminum up to $2,189/mt on Thursday morning. Gold futures also advanced, with intra-day COMEX Feb gold approaching $1,663/to on Thursday after having started the week out below $1,618/mt. Oil prices were more erratic, with NYMEX crude oil for Feb delivery seesawing this week, and especially on Thursday, when prices ranged from around $98.50-$103/bbl. As of Thursday, stocks on Wall Street were faring pretty well, with the Dow Industrials posting gains in three out of the first four trading sessions of the week as the yield on 10-yr Treasuries dropped to 1.925%.

On Friday, base metal prices pulled back after a string of earlier gains this week as concerns about S&P Euro-zone credit downgrades resurfaced. In London, LME official 3-mo. copper was down to $7,980/mt after having touched $8,100/mt in pre-market trading, while official 3-mo. aluminum dipped to $2,140/mt this morning, Reuters reports. In New York, commodity prices retreated as well, with COMEX March copper down a couple of cents to $3.63/lb. around mid-day, while crude oil and gold futures dipped below $99/bbl and $1,635/to, respectively. On Wall Street, stocks reportedly fell on the heightened European concerns also, with the Dow Industrials down 1% in morning trading as the Euro weakened below $1.265.

Macro news…
The news from overseas was decidedly mixed this week as signs from China indicate room for growth while Europe remains anyone’s guess. Figures released this week show that consumer prices in China increased 4.1% in December, down from 4.2% in November, as Chinese inflationary concerns continue to recede. Also, the Financial Times reports that China’s imports of crude oil and iron ore grew 6% and 11% in 2011, respectively, while copper imports in December surged nearly 48% higher year-on-year to a record 508,942 tons. In Europe, the positive results from bonds offerings in Spain and Italy earlier this week were subsequently overshadowed by the threat of credit downgrades from Standard & Poor’s, which press reports indicate could come as early as today.

The economic news in the U.S. this week, while not overwhelmingly fantastic, wasn’t all that bad either. Anecdotal evidence from the Federal Reserve’s Summary of Commentary on Current Economic Conditions, otherwise known as the beige book, indicated continued economic expansion in December, albeit at a modest pace. The Fed reports that, in general, conditions across districts were better in the “…manufacturing, retail, and nonfinancial services sectors than in financial services or real estate.” Nothing too shocking there. The report also indicated that, while labor market conditions were firming, there was “…virtually no upward pressure on wages.” Other fairly positive news included the 0.1% increase in retail sales 0.1% in December and improving consumer sentiment, as the Reuters/University of Michigan consumer sentiment index advanced from 69.9 in December to 74.0 in January. Somewhat less encouraging was the increase in initial weekly unemployment claims to 399K and the widening of the U.S. trade deficit to $47.8 billion in November. At least scrap exports are still helping our trade balance.

Scrap Exports…
Figures released from the Commerce Department this morning show that the value of all scrap exports from the U.S. in November came in at nearly $3.2 billion,down slightly from October but up 17% year-on-year. For the Jan-Nov 2011 period, the FAS value of total U.S. scrap imports surged to $36.3 billion, up 35.7% from Jan-Nov 2010 and already shattering the full year 2010 record of $29.6 billion. We’ll have the breakdown of scrap exports by commodity in next week’s Friday Report.

Ferrous…
For the week ending January 7, 2012, the American Iron and Steel Institute estimates that weekly U.S. raw steel production increased 5.6% year-on-year and 1.3% from the preceding week to 1.89 million net tons as capacity utilization increased to 76.5%. As production ramped up, reports of rising ferrous scrap prices continued to circulate. According to Scrap Price Bulletin, ferrous scrap prices were up sharply as of early this week, with composite prices raised for No. 1 HMS to $432.50/gt, shredded to $473.83/gt and No. 1 dealer bundles to $505.83/gt. Late this week, The Steel Index raised their reference price for shredded to $473/lt delivered Midwest while noting that unseasonably mild weather conditions have led to “good scrap flows.” A number of sources, TSI included, have pointed to the possibility of a pullback in scrap prices in February. Time will tell. With so much uncertainty going forward, where on earth can one find valuable insights as to what to expect from scrap markets in 2012? Look no further than next week’s webinar on The Outlook for Commodities in 2012. We’ll be joined by William Adams of Fastmarkets.com, Pat McCormick of World Steel Dynamics and Greg Rudder of RISI, who will share their insights on market drivers for the nonferrous, ferrous and recovered paper markets in 2012, respectively. Sorry, this is for ISRI members only: membership has its advantages. For more info, contact Jonathan Levy at jonathanlevy@isri.org.

Nonferrous…
Nonferrous prices reportedly got a boost from investment fund re-balancing this week amid signs that Chinese demand strengthened ahead of the upcoming new year celebrations there. After having dipped to $7,508/mt on Monday morning, LME official 3-mo. copper was up to $7,961/mt by Thursday morning and reportedly touched the $8,100 mark early on Friday. Aluminum also fared well this week, with LME official 3-mo. aluminum up to $2,189/mt on Thursday morning, up from last Friday’s official price of $2,039/mt. The Aluminum Association reported this week that primary aluminum production in the U.S. increased 15% in 2011 to 1,727,258 tons, while December 2011 output of 177,717 tons was up nearly 19% year-on-year. Secondary aluminum prices were reportedly a little firmer this week with siding indicated mostly in the high 60 cent range, old sheet and cast in the upper 60’s to low 70’s, and MLC in the low to mid 70’s. Here’s a look at how aluminum prices fared in 2011:

Public Notice ISRI Scrap Specifications
The Electronics Division of the Institute of Scrap Recycling Industries, Inc, (ISRI) recently approved the following proposed specifications for electronic scrap metals at the Electronics Division Meeting. The proposed guidelines are intended to replace existing ISRI Electronic Scrap Metals (ESM) specifications ESM 1 - ESM 7 (see page 44 of 2011 ISRI Scrap Specifications Circular).

The proposed guidelines are as follows: Preface: The following metals specifications are directed to processing plants generating value added commodities for consumers producing metal products. All the specifications below are subject to final terms and conditions as agreed between the buyer and seller. SPECIFICATION EM1 - Eddy Current (EC) Aluminum Shall consist of the shredded aluminum fraction generated by EC separation of electronic products being predominately Aluminum. Bulk density to be a minimum of 30 lbs/cu ft (subject to terms between the Buyer and Seller). Material may contain agreed upon amounts of Zinc and Copper, but shall not contain more than a total 5% maximum of non-metallics, of which no more than 1% shall be rubber and plastics. To be free of excessively oxidized material, any sealed or pressurized items. Any variation to be sold by special arrangement between buyer and seller.

Note: Refer to ISRI nonferrous specification for TWEAK or TWITCH. SPECIFICATION EM2 - Eddy Current (EC) Scrap Shall consist of a combination of nonferrous metals which should be predominately Aluminum, but may contain statistically significant percentages of Zinc or other nonferrous metals. Bulk density to be a minimum of 30 lbs/cu ft and subject to terms between the Buyer and Seller. Material to be bought/sold under this guideline shall be identified as “EM2” with a number to follow indicating the estimated percentage nonferrous metal. (e.g. “EM2-90” means the material contains approximately 90% nonferrous metal content). May also be screened to permit description by specific size ranges.

Note: Refer to ISRI nonferrous specification for ZORBA. NOTE : Specifications for clean Al scrap produced by demanufacturing or pretreating EOL scrap prior to shredding can be found under ISRI Guidelines for Nonferrous scrap (pages 6-8 in the 2011 circular). For Al streams <85% Al, please as well consult the general Al specifications. SPECIFICATION EM3 - Circuit boards and shredded circuit boards from the processing of End-oflife electronics Shall consist of whole or shredded copper/precious metal bearing populated or unpopulated circuit boards from the manual dismantling of electronic products.
May also consist of shredded circuit boards from end of life electronic products (EOLEP) processing systems with a maximum piece size of 2 inches. Maximum acceptable metal contamination: Al 5%, Fe 2%, Zn 2%, Mg 1%, Be 200 ppm Other elements subject to agreement between buyer and seller Maximum plastic content: 40% Typically sold on an assay basis and classified into different categories denominated by the gold levels contained in the material. Major classifications are: 1) <50 g/mt 2) <200 g/mt 3) >200 g/mt SPECIFICATION EM4 - Light Iron Shall consist of whole No.1 and No.2 whole wrought iron and/or steel scrap and No.1 busheling from the manual dismantling of electronic products.

Refer also to 200, 204 and 207 Ferrous Scrap SPECIFICATION EM5 - Iron Frag Shall consist of shredded No.1 and No.2 whole wrought iron and/or steel scrap and No.1 busheling from end of life electronic products (EOLEP) processing systems. Refer also to 210 and 211 Ferrous Scrap The guidelines will be submitted for final approval at the next ISRI Board of Directors meeting to be held at The Mayflower Renaissance Hotel in Washington, DC on Thursday, January 19, 2012 from 1:00–3:00 p.m. The Board of Directors may adopt, amend or reject the proposed recommendations or table them pending further review and recommendations. Interested parties may participate in the proceeding by personal appearance or by submitting written comments to: Mr. Randy Goodman Freedom Metals, Inc. 1225 South 15th Street Louisville, Kentucky 40210 randy@freedommetals.com or Mr. Eric Harris ISRI 1615 L Street, NW, Suite 600 Washington, DC 20036-5610 EricHarris@isri.org

****** Guest Contributors: Gary Thayer, Chief Macro Strategist Tom Spottiswood, Managing Principal, RiverBay Investment Group LLC Wells Fargo Advisors January 11, 2012 Macro Comment Employment situation improves modestly The December employment report was good news. Payrolls are expanding as businesses create more jobs. Unfortunately, payrolls are still far below their pre-recession peak. Nevertheless, the growth in jobs is a positive sign that the U.S. economy is not in recession despite several European countries going into recession. Once again, the U.S. economy is proving to be more resilient than many investors thought it would be this past summer. The U.S. economy added 200,000 more jobs than it lost in December. As a result, nonfarm payrolls increased to the highest level since May 2009. The latest data show that the economy is continuing to recover from the 2008-2009 recession. However, the monthly job gains have been slower than in the past when the economy was doing well in most areas. Looking back, job growth was very strong in the years before the last two recessions.

Specifically, nonfarm payrolls increased an average of 239,000 per month in the four years before the 2001 recession. More recently, nonfarm payrolls increased an average of 161,000 per month in the four years before the 2008 recession. The December payroll number was within this range but job growth has not been this good every month during the past two years. In fact, during the past two years, nonfarm payrolls have only increased an average 108,000 per month. History shows that job growth depends on increasing business confidence. Companies are not going to create a lot of new jobs when the economic outlook is uncertain. Fortunately, business confidence appears to be improving, and companies are creating more jobs. However, some of the private sector job growth is still being offset by government job cuts. This trend is likely to continue this year as governments, especially at the state and local level, bring expenditures more closely into line with revenues. Another encouraging sign of an improving job situation is the breadth of the job creation. If only a few industries were creating jobs, then the economy would be at a greater risk if activity in those few industries declined. Instead, job growth is relatively widespread.

More industries are creating jobs than cutting jobs. This makes the economy more resilient because activity could decline in several areas, and there would still be enough job growth in other areas to support the economy. The December jobs report also showed that the headline unemployment rate declined to 8.5% in December from a revised 8.7% in November. Unemployment is still much higher than it was before the last recession but the jobless rate is gradually trending lower. In fact, the unemployment rate is lower now than it was two years ago. History suggests that once the unemployment rate trends down for two years or more economic sentiment tends to improve.


There was also some good news in other areas of the report. The number of people working part time for economic reasons decreased modestly and is now at the lowest level in more than two years. Similarly, the number of people out of work for more than 27 weeks also declined and is at the lowest level in more than two years. These problems appear to be diminishing as payrolls increase. Unfortunately, the number of people working part time when they would rather work full time and the number of people employed for an extended period remain much higher than before the recession. Finally, he broadest measure of the unemployment rate, which includes normal unemployment, discouraged people who have given up looking for work and persons who are working part time but would prefer to work full time, has also declined to its lowest level in more than two years. This broad unemployment rate, called the U-6 unemployment rate, remains high at 15.2%, but is now two percentage points lower than it was at its peak in late 2009. In summary, all of these employment measures show that labor market conditions are improving as the economy expands modestly. But employment conditions are still far from their best levels before the 2008-2009 recession started. We believe these improving employment trends are likely to boost economic sentiment in 2012.

This Week’s Quote: “Originality is nothing but judicious imitation.” -- Voltaire

This Week’s Story: Three men were standing in line to get into heaven one day. It had been a pretty busy day, though, so St. Peter had to tell the first one, "Heaven's getting pretty close to full today, and I've been asked to admit only people who have had particularly horrible deaths. So what's your story?" So the first man replies: "Well, for a while I've suspected my wife has been cheating on me, so today I came home early to try to catch her red-handed. As I came into my 25th floor apartment, I could tell something was wrong, but all my searching around didn't reveal where this other guy could have been hiding.

Finally, I went out to the balcony, and sure enough, there was this man hanging off the railing, 25 floors above ground! By now I was really mad, so I started beating on him and kicking him, but wouldn't you know it, he wouldn't fall off. So finally I went back into my apartment and got a hammer and starting hammering on his fingers. Of course, he couldn't stand that for long, so he let go and fell -- but even after 25 stories, he fell into the bushes, stunned but okay.

I couldn't stand it anymore, so I ran into the kitchen, grabbed the fridge and threw it over the edge where it landed on him, killing him instantly. But all the stress and anger got to me, and I had a heart attack and died there on the balcony." "That sounds like a pretty bad day to me," said St. Peter, and let the man in. The second man comes up and St. Peter explains to him about heaven being full, and asks for his story. "It's been a very strange day.

You see, I live on the 26th floor of my apartment building, and every morning I do my exercises out on my balcony. Well, this morning I must have slipped or something, because I fell over the edge. But I got lucky, and caught the railing of the balcony on the floor below me. I knew I couldn't hang on for very long, when suddenly this man burst out onto the balcony. I thought for sure I was saved, when he started beating on me and kicking me. I held on the best I could until he ran into the apartment and grabbed a hammer and started pounding on my hands. Finally I just let go, but again I got lucky and fell into the bushes below, stunned but all right. Just when I was thinking I was going to be okay, this refrigerator comes falling out of the sky and crushes me instantly, and now I'm here." Once again, St. Peter had to concede that that sounded like a pretty horrible death.

The third man came to the front of the line, and again Peter explained that heaven was full and asked for his story. "Picture this," says the third man, "I'm hiding inside a refrigerator..."