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For the week ending Friday, October 28 th

Commodity prices posted healthy gains this week as the Euro-zone agreement and diminishing worries about a double dip recession in the U.S. bolstered investor sentiment. On Monday, Reuters reported that LME official 3-mo. copper prices opened the week higher at $7,381/mt, while official 3-mo. aluminum opened up at $2,181/mt as attention remained fixed on the European negotiations.

Most commodities continued to trade higher as the week progressed, with LME 3-mo. copper breaking through the $8,000/mt mark on Thursday as markets reacted positively to the details of the European deal and the 2.5% expansion in U.S. 3rd quarter GDP. In New York, NYMEX crude oil for December delivery pushed through the $90/bbl level on Monday and climbed higher from there, rising to levels not seen since early August. Gold prices, which lately seem to be trading increasingly in-line with other commodities, advanced as well, with COMEX December gold rising and staying above $1,700/to this week. On Wall Street, the Dow Industrials advanced in three out of the first four trading sessions this week, including a 340 point spike on Thursday, while the dollar weakened to as low as $1.42 against the Euro yesterday.

On Friday, markets leveled off somewhat after Thursday’s big gains. COMEX copper for December delivery, which as recently as October 20 th had fallen to nearly $3.00/lb., remained around the $3.70/lb. level today following the 20 cent spike on Thursday as details of the Euro-zone deal came to light. In London, Reuters reports that LME 3-mo. copper and aluminum traded as high as $8,280/mt and $2,265.50/mt, respectively, this morning before settling back later in the session. In addition, LME 3-mo. nickel and tin prices reached intra-day highs of $19,995/mt and $22,200/mt, respectively.

In New York, oil and gold prices took a breather following earlier gains, with crude oil dipping below $94/bbl as gold prices eased to around $1,745/to. On Wall Street, stocks lacked direction early this afternoon following the nearly 3% jump in the Dow Industrials yesterday as the yield on 10-yr. Treasuries eased to 2.33%.

Macro news…

As the looming European debt and financial crisis has been wreaking havoc on markets for months, the Euro-zone deal was the most eagerly anticipated economic development this week. Announced early Thursday, European leaders agreed to a plan that seeks “voluntary” losses of 50% on the face value of Greek bonds by the banks, in addition to raising the banks’ capital requirements, bolstering the European bailout fund, and incentivizing investors to return to the Italian and Spanish bond markets, in particular. Now all that’s left is ironing out the details and implementing the deal, and how hard could that be?

Investors also reacted positively the latest U.S. GDP figures released by the Bureau of Economic Analysis on Thursday, which show that the economy expanded 2.5% in the third quarter, up from the 1.3% growth rate in 2Q (and the paltry 0.4% growth in the first quarter).

The BEA figures show broad-based gains during the quarter, including a 2.4% increase in real personal consumption expenditures, gains of around 4% for both durable goods and real exports, and a 16.3% jump in real nonresidential fixed investment. Of particular note, orders for primary and fabricated metals increased a healthy 2.6% and 1.9%, respectively. 3 The positive market reaction this week to the U.S. GDP figures and the European debt agreement were tempered somewhat by other economic data released this week, including lackluster U.S. housing market data, mixed readings on consumer confidence, initial claims for unemployment still above 400,000, and falling consumer savings rates as increases in consumer spending have recently outstripped income gains. While the U.S. economic expansion looks set to continue, that’s not to say that the high levels of uncertainty that contributed in part to the recent softening in scrap prices have been completely dispelled.

Ferrous…

At the start of the week, Scrap Price Bulletin was reporting steady composite prices for No. 1 HMS and shredded scrap at $408.50/gt and $449.17/gt, respectively. While those prices are down about $3-8/ton from one month ago, they’re also about $90-$100/ton higher than this time last year. The Steel Index, however, dropped their reference price for shredded this week by $2/ton to $441/lt delivered Midwest, citing a significantly softer export market. Based also on reports of weakening overseas demand, Plattsdropped its midpoint price for No. 1 HMS for export by $30/ton on Thursday to $355/lt delivered East Coast docks. Platts also lowered its midpoint price assessment for hot rolled coil to $640/st ex-works Indiana. Meanwhile, the American Iron and Steel Institute reported that domestic raw steel production dropped to 1.782 million net tons for the week ending October 22nd, a 4.3% drop from the preceding week as capacity utilization dropped to 71.9%. Of note, while there seems to be a general consensus that scrap prices have softened globally and across the commodities complex, we would not describe the prevailing view at this week’s Bureau of International Recycling meetings in Munich, Germany as pessimistic looking forward. We’ll have more from the BIR meetings in our next Friday Report on November 11.

Nonferrous…

As indicated, nonferrous prices rebounded sharply this week in response to the positive economic news out of Europe and the U.S. Reuter’s reports that LME official 3-mo copper climbed sharply from $7,381/mt on Monday to $7,602 on Tuesday and by Thursday morning was up to $8,040/mt. Today, the news agency reports that LME 3-mo. copper hit an intraday high of $8,280/mt before settling back later in the day to below $8,200/mt. The other base metals largely followed suit and were supported in part by a weaker dollar, which fell to as low as $1.42 against the Euro late this week. But despite this week’s significant gains, nonferrous prices are still down significantly since the end of last year.

A report from Fastmarkets.com this week indicated that tighter copper scrap supplies in the U.S. have been underpinning scrap prices as well as primary copper premiums. AMM reports increased brass ingot makers’ scrap prices this week, including Bare Bright at 357-361 cts., No. 1 at 337-340 cts., and No. 2 at 328-330 cts. Secondary aluminum prices were reportedly little changed early this week, with sheet and cast indicated mostly around 67-69 cents, siding in the high 60’s-low 70’s, and MLC around 71-73 cents.

Recovered Paper and Fiber… Figures released from the Census Bureau earlier this month show that U.S. recovered paper exports increased to $325 million in the month of August, up from $320 million in July, while year-to-date (JanAug) RP shipments jumped 20% higher to approach $2.6 billion. The largest export destination by value so far this year include: China $1.5 billion (+34%), Mexico $237 million (-4%), India $203 million (+28%), South Korea $155 million (+16%), Canada $131 million (-3%) and the EU $72 million (+63%). Here’s the recent monthly trend for recovered paper exports:

By volume, recovered paper exports also advanced in August, edging up to 1.95 million short tons, while year-to-date shipments of approximately 15.6 million st were up 14% over last year as large gains in OCC, high grade deinking and pulp substitutes more than offset lighter loadings of printed news and mixed paper. 

The Census figures show plastic scrap exports broke through the $100 million mark for the first time in August, increasing to $102 million from $97 million in July. Meanwhile, the year-to-date value of plastic scrap shipments advanced 14% to $687 million, thanks in large part to improved demand from China ($334 million, +32%), as well as Hong Kong ($179 million, +2%) and Canada ($62 million, +28%).

By volume, U.S. plastic scrap shipments reportedly increased to nearly 205,000 mt in August, bringing Jan-Aug 2011 exports up to 1.4 million mt, a 9% gain over the corresponding period last year as overseas demand for PET plastics improved 18%. Here’s the breakdown by volume:

This Week’s Quote: “The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine.” -- Abraham Lincoln

This Week’s Story: A CEO throwing a party takes his executives on a tour of his opulent mansion. In the back of the property, the CEO has the largest swimming pool any of them has ever seen. The huge pool, however, is filled with hungry alligators. The CEO says to his executives "I think an executive should be measured by courage. Courage is what made me CEO. So this is my challenge to each of you: if anyone has enough courage to dive into the pool, swim through those alligators, and make it to the other side, I will give that person anything they desire. My job, my money, my house, anything!" Everyone laughs at the outrageous offer and proceeds to follow the CEO on the tour of the estate. Suddenly, they hear a loud splash. Everyone turns around and sees the CFO in the pool, swimming for his life. He dodges the alligators left and right and makes it to the edge of the pool with seconds to spare. He pulls himself out just as a huge alligator snaps at his shoes. The flabbergasted CEO approaches the CFO and says, "You are amazing. I've never seen anything like it in my life. You are brave beyond measure and anything I own is yours. Tell me what I can do for you. The CFO, panting for breath, looks up and says, "You can tell me who the hell pushed me in the pool!"