ISRI Friday Report-For the week ending Friday May 3rd

On Friday, commodities were already trending higher ahead of today’s jobs report in the U.S. as most actively traded SHFE copper for September delivery settled 2.1% higher today in Shanghai. Base metal prices firmed across the board in London this morning as well, including higher LME official 3-mo. asking prices for copper ($7,151/mt = $3.24/lb.) and aluminum ($1,861.50/mt = 84.4 cents/lb.). The better than expected jobs report from the Labor Department (see details below) only added fuel to the rally. In New York, COMEX Jul copper surged 20 cents higher in early afternoon trading to $3.307 /lb. while NYMEX crude oil futures reportedly traded as high as $96.04/bbl. On Wall Street, the Dow Industrials briefly broke through the 15,000 mark for the first time before closing nearly 1% higher today at 14,973.96...

Macro News

This morning’s jobs report was the big economic release of the week and the report was almost uniformly positive. Labor Department figures show the U.S. private sector added 176,000 jobs in April and, after deducting the 11,000 drop in government payrolls, total nonfarm payrolls increased by 165,000, beating the consensus forecast for a gain of around 150,000 jobs. Significant revisions to prior month data now show that job growth in February (+332,000) was the fastest since May 2010 while during Jan-Apr employers added 783,000 jobs overall. Unlike the March report, the civilian labor force expanded in April while the unemployment rate edged down to 7.5%. Although the decrease in the average workweek to 34.4 hours may cause some concern as part-time employment rose in April, the unemployment rate remains well above the Federal Reserves’ 6.5% threshold for keeping interest rates at exceptionally low levels (provided inflation remains in check).

Change in Total U.S. Nonfarm Payrolls

Jan 2009 -Apr 2013 (thousands of persons)

Source: U.S. Bureau of Labor Statistics/Federal Reserve Bank of St. Louis

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In its statement this week, the Fed reiterated its commitment to purchasing $40 billion of additional agency mortgage-backed securities and $45 billion of longer-term Treasury securities per month, while noting that it could adjust the size of its monthly purchases “...as the outlook for the labor market or inflation changes .” In Europe, the ECB cut its benchmark interest rate by 25 basis points to 0.50%, as expected, although market participants expressed doubt that the rate cut would do much to spur growth along the EU’s troubled southern periphery. In other economic news, the Institute for Supply Management reports that their Purchasing Managers’ Index eased to 50.7 in April –down from 51.3 in March, while continuing to signal expansion in the manufacturing sector. The slowdown in manufacturing growth in April coincides with today’s jobs report that shows manufacturing employment was unchanged last month (on a seasonally adjusted basis). Somewhat less encouraging was the 4% drop in factory orders, 1.7% decline in construction spending and 0.9% drop in U.S. exports in March. As we’ll see, the value of scrap exports also took a dip in March.

Trade...

Figures released by the Census Bureau this week show that the total value of U.S. scrap exports (including all scrap metal, paper, plastic, rubber, etc.) decreased from $2.25 billion in February to $2.18 billion in March. As compared to Jan-Mar 2012, scrap exports during Jan-Mar 2013 fell 19% by value to $6.5 billion, according to the latest government figures. By major destination, the FAS value of year-to-date U.S. scrap exports fell:

• ·-14% to China to $2.2 billion
• ·-5% to Turkey to $623 million
• ·-32% to Canada to $552 million
• ·-28% to South Korea to $411 million
• ·-11% to Taiwan to $388 million

In contrast, U.S. export sales of scrap through March increased to Germany, Indonesia, Vietnam, the U.K., Peru and Egypt, among others. We’ll have the detailed breakdown by commodity, volume and country in next week’s Friday Report.

FAS Value of Total Monthly U.S. Scrap Exports ($)

January 2011 -March 2013

(Sources: U.S. Census Bureau/U.S. International Trade Commission)

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Ferrous...

The American Iron and Steel Institute reports this week that, based on Commerce Department data, steel import permit applications in April fell 3% from the March permit tons to 2.576 million net tons, while Jan-Apr import figures (including preliminary March imports and April permit tons) fell 13% for total steel and 11% for finished steel imports as compared to Jan-Apr 2012.AISI also reported this week that domestic raw steel production for the week ending April 27 declined 0.4% from the preceding week and was down 7.3% from the corresponding period last year to 1.866 million nt as the capacity utilization rate came in at 77.9%. For the year-to-date, U.S. raw steel production is down 7.6%, AISI reports.

Weekly U.S. Steel Mill Capacity Utilization Rates,

Jan 2012 -Apr 2013 (%)

Source: American Iron and Steel Institute

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As May gets underway, early reports indicate that ferrous scrap tags in the U.S. have softened further. This morning, The Steel Index reported a $14/ton decrease in their shredded reference price to $372/lt delivered Midwest. The recent weakness in scrap prices comes at a time of diminished U.S. steel output and weaker global iron ore prices.This week, U.S. Steel reported a first quarter 2013 net loss of $73 million as compared to a fourth quarter 2012 net loss of $50 million. The company also reported an average realized flat-rolled product price of $719/nt in 1Q 2013, down from $721/nt in the fourth quarter of 2012 and $764/nt in 1Q 2012.

Meanwhile, Macquarie reports this week that following China’s return from the May Day holiday, 62% Fe iron ore prices dropped below $130/ton for the first time since December.

Nonferrous...

A remarkable finish to the week for base metal prices as today’s better than expected jobs report and short covering propelled LME copper prices 6% higher today, Fastmarkets.com reports. For the day, LME 3-mo. copper jumped $432/mt higher to $7,290/mt, while LME 3-mo. aluminum gained $68.25/mt to last trade at $1,889.75/mt. After having dropped to its lowest level since 2009, LME 3-mo. nickel recovered to as high as $15,210/mt today, while LME 3-mo. lead and zinc reportedly traded as high as $2,048/mt and $1,894/mt, respectively. Prior to the rebound in terminal market prices today, AMM was reporting tighter copper scrap spreads this week amid continued tight supply conditions, with brass ingot maker discounts for Bare Bright at 3-5 cents, No. 1 at 11-13 cents, and No. 2 at 23-25 cents.

Looking forward, the International Copper Study Group is now forecasting that the global refined copper market will end a 3-year streak of copper deficits this year as refined copper supply is expected to exceed demand by 417,000 mt in 2013 and the surplus is expected to widen to 681,000 in 2014. For 2012, ICSG reported a world refined copper deficit of 396,000 mt as world usage increased 3.4 percent to 20.5 million mt. A sharp up-tick in Chinese refined copper imports and apparent copper usage was behind the rise in world consumption, helping to propel copper usage in Asia 8% higher last year. In comparison, ICSG figures show world refined copper production rose only 2.7 percent in 2012 to 20.1 million mt, including a nearly 3 percent increase in secondary refined production (from scrap) to approximately 3.6 million mt.

Global Refined Copper Market Balance

2008 -2014(f) (thousand metric tons)

Source: International Copper Study Group

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For a complete recap of 2012 commodity market developments, please see our “2012 Commodity Market

Wrap-Up” article in the May/June edition of our very favorite Scrap magazine.

Recovered Paper and Fiber...

RISI reports this week that Chinese recovered paper imports rose 26% month-on-month in March 2013 to 2.6 million tons, although RP imports were down nearly 11% as compared to March 2012. For the year- to-date, Chinese imports of recovered paper are down 0.5% as compared to Jan-Mar 2012 as a 21% increase in Mixed Paper shipments was offset by a 10% drop in ONP imports and 3% decrease in OCC movement. It will be interesting to see if the official data on Mixed Paper imports will show a continuation of the first quarter's pace going forward given the reports of tighter inspections at some Chinese ports.

ISRI Eye on Equities...

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