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North American Scrap Prices

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European Scrap Prices

For the week ending Friday, October 14th

The value of U.S. scrap exports surged to an all-time high in August, breaking through the $4 billion mark for the first time to reach $4.075 billion for the month,according to figures from the Census Bureau. Top scrap trading partners for the month included: China $1.16 billion; Canada $382 million; the EU $378 million; Turkey $358 million; South Korea $213 million, Taiwan $208 million and India $131 million. The jump in August reflects two big trends: a spike in the value of precious metal scrap exports and sharply higher ferrous scrap shipments. As the price of gold topped out around $1,900/to in August, U.S. exports of gold, platinum and other precious metal scrap rocketed $300 million higher. In addition, the volume of ferrous scrap exports increased by around 900,000 mt on improved demand from China, South Korea, India and, especially, Turkey.

U.S. ferrous scrap exports in August jumped by approximately 900,000 mt from the prior month to over 2.7 million mt according to the latest Census Bureau figures. The increase reflects a more than doubling of loadings to Turkey to reach 800,000 mt, while  shipments to India, Taiwan, South Korea and China improved by more than 100,000 mt. each. In terms of value, ferrous scrap shipments rose from $827 million in July to around $1.24 billion in August. By grade, No. 1  HMS and shredded scrap exports increased by 395,000 mt and 337,00 mt, respectively, in August.

On the domestic front, the American Iron and Steel Institute reported this week that domestic raw steel production increased to 1.833 million net tons for the week ending October 8, up 2.9% from the previous week and 12.5% higher than one year ago as the capability utilization rate increased to 74.0%. But reports continue to indicate softer domestic ferrous scrap prices this week. Scrap Price Bulletin lowered  its composite prices for No. 1 HMS to $408.50/gt  (from $416.83/gt last week) and for shredded to $449.17/gt (from $452.50/gt one week ago), while  The Steel Index dropped its reference price for shredded by 0.2% to $449/lt delivered Midwest.

 Metals Market analysis

Moving in response to the shifting economic signals from Europe, China, and elsewhere, commodity prices were mostly trending higher for the second consecutive week. News of the collapse and subsequent rescue/break-up of Dexia Bank in Europe heightened concerns about the health of the European banks, but by week’s end signs of progress on expanding the European bailout fund and recapitalizing banks ahead of the EU summit in Brussels next week were seen as supportive.

In London, LME official 3-mo. copper started off in positive territory at $7,346.50/mt on Monday morning and, after see-sawing through much of the week, broke through the $7,500/mt level late in the week. LME 3-mo. aluminum prices remained fairly range-bound, hovering between $2,200-$2,250/mt for much of the week. In New York, gold prices lacked direction partly in response to the shifting foreign exchange markets, bouncing mostly between $1,655-$1,690/to this week. Meanwhile, NYMEX light sweet crude for November delivery started the week at $82.75/bbl and climbed above $86/bbl as the week progressed. On Wall Street, stocks see-sawed as well but the Dow Industrials were up around 375 points for the week as of Thursday’s close.

On Friday, markets reacted favorably to signs of slower inflation growth in China, improved retail sales in the U.S. and reports of progress on the European front. In London,  Reuters reports that LME 3-mo. copper opened higher at $7,520/mt this morning and remained in positive territory as the day progressed. The other nonferrous metals were mixed, though, as LME official 3-mo. aluminum eased to $2201.50/mt this morning before rebounding later in the day, the news agency reported. As the Euro strengthened to $1.3875 in afternoon trading, gold futures also advanced, with COMEX gold for December delivery up over $1,680/to this afternoon. Oil prices firmed as well, with NYMEX crude oil up more than $2/bbl to touch the $87/bbl mark. As investors digested the latest retail sales, consumer confidence, and 3rd quarter corporate reports, stocks also advanced, with the Dow Industrials up nearly 1% in early afternoon trading. 

 Macro news…

This was a relatively light week for economic releases in the U.S., as initial claims for unemployment continued to hover around the 400,000 level, retail  sales advanced 1.1% in September, and the Reuters/University of Michigan reading on consumer sentiment unexpectedly dropped to 57.5 this month. The shifting economic fortunes in Europe and international trade issues garnered as much attention this week as the U.S. Congress approved three free-trade agreements with South Korea, Colombia and

Panama. Meanwhile, the Senate voted to direct the Obama administration to punish China for keeping its currency undervalued against the dollar just as Census Bureau figures released this week show the U.S. trade deficit with China rose to a record $28.96 billion in August. The response? The People’s Bank of China lowered the parity rate to 6.3737 yuan to the dollar on Thursday. So there.

While China’s economic growth and demand for commodities has been an increasing source of concern in the markets lately, Goldman Sachs is predicting a soft landing for the Chinese economy in 2012 according to a report released this week. GS is forecasting the Chinese economy will grow 9.1% this year and 8.6% in 2012 as inflation is expected to decline, a degree of monetary flexibility is expected to remain in place, and domestic investment is expected to counter slower exports. Figures released from China’s National Bureau of Statistics this week indicate that consumer prices increased 6.1% in September, down slightly from the 6.2% increase in August. While the trade imbalance with China isn’t expected to vanish anytime soon, we know of one vital source that continues to help the U.S. balance of trade: scrap!

Nonferrous…

Nonferrous scrap exports from the U.S. climbed higher in August as well, increasing to around 335,000 mt in August as year-to-date exports advanced 17% by volume to approximately 2.4 million mt. By value, nonferrous scrap exports improved as well, increasing from $889 million in July to $932 million in August.  By metal, the value of scrap shipments in August increased for copper ($492 million), aluminum ($384 million), and nickel scrap ($10.8 million), but decreased for lead ($3.3 million) and zinc scrap ($6.6 million). Here’s the recent trend in the value of NF scrap shipments by metal:

While the cumulative volume of U.S. copper scrap shipments to China this year are up around 33% from last year to nearly 637,000 mt through August, press reports this week indicated that new rules in China are slowing down Chinese copper scrap imports. The Wall Street Journal reported this week that China’s Ministry of Environmental Protection issued new rules, effective August 1, that require an environmental certificate and “immediate inspection” at the ports, slowing down the customs clearance process. The report indicated that Chinese copper scrap imports decreased 12% to 382,175 mt in August, while imports of copper products in September increased to 380,526 mt, the highest level since May 2010. Also noteworthy this week was the widely reported story that copper stocks in China stood at 1.9 million mt at the end of 2010, according to CNIA figures recently presented in Lisbon, indicating a larger build-up in stocks than many had previously expected.

Nevertheless, UBS is forecasting that copper growth in China will increase 6% this year as imports into China are expected to rise in the fourth quarter and prices are expected to average $3.68/lb (or $8,113/mt) in the second half of 2011. (Correction: BoA Merrill Lynch’s 2012 copper price forecast is for an average price of $8,375/mt). As  indicated, copper prices this week continued to strengthen, with COMEX copper for December delivery climbing as high as $3.43/lb this afternoon. Late this week, AMMwas reporting brass ingot makers’ scrap prices of 321-323 cts/lb for Bare Bright, 306-309 cts/lb for No. 1, and 293-295 cts/lb for No. 2. 

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GUEST CONTRIBUTOR: William Adams, Head of Research ,FastMarkets.com

 Market View

Metals have started to correct; we expect further weakness after a period of consolidation We concluded our Market View report at the end of August by saying: “With no quick solution likely for the EU and US debt situations and with governments’  running out of tools to prop up faltering economic growth, there remains a high risk that market sentiment will weaken further, which could lead to another down leg in equity and commodity prices.”

The LME Index of metal prices has since dropped to 3,327 from 4,043, a drop of some 18 percent, although copper has fallen 33 percent from its high in August of $9,905 per tonne.  Sentiment has turned decidedly negative in recent months - it looks increasingly likely that the developed economies in the West are heading for another recession and, in many cases, are probably already in one.

The 2009-2011 rebound was strong after a lot of money was thrown at the problems from 2008. But although the money raised asset prices and led to  restocking, which boosted corporate earnings, the measures did not create sustainable growth, sufficient jobs or a recovery in the housing market.  We now seem to be facing the same problems we did in 2008 but this time the debt is larger and the affected governments have fewer, if any, reserves to come to the market's aid. The EU debt debacle not

only hangs over Europe; there is a high risk of it causing trouble all over the world. We note with concern that Asian policy makers are already taking measures to protect their economies from the likely economic fallout from Europe. Indonesia unexpectedly cut interest rates recently and the Philippines has announced a stimulus plan although  South Korea has refrained from tightening rates further and China has been quiet as far as tightening monetary policy further. 

Is Asia trying to stay one step ahead of developments? Perhaps so but we came away from our discussions with Asian contacts over LME Week with the feeling that Asia is worried about not only Europe but also growth within its region too.  If the Asian powerhouse slows down while developed countries are on a back foot, the outlook for global growth would look even bleake

For now, while the markets await the details of the Merkel-Sarkozy rescue plan for Europe, the downside may be put on hold for a while and there may well be room for a rally in anticipation of a relief rally after the next G20 meeting at the end of the month. But without wanting to be too negative, if EU policy markets have been unable to come up with a solution over the past two years, can we expect them to do so in the next two or three weeks? Even if they do come up with a workable plan, it is likely to be unpopular and inflict considerable pain on Europe’s economies, investors and banks if it is to be successful - none of which is likely to be good for the markets.  

Looking at the metals, several returned in the recent fall to prices that would have started to make highercost producers twitchy. So far we have heard no talk of cuts to output (apart form Indonesia threatening to stop exports of tin unless prices get back above $25,000/tonne) but, with lead and zinc moving towards $1,800 per tonne and tin and nickel dropping below $18,000 per tonne, we would say that these would have been on the agenda had prices fallen much further.

We now expect prices to trend lower over the medium term - the next few weeks and months - until such time that cuts are made. The initial announcement that reductions will be made may well prompt shortcovering rallies but, given the likelihood of slower economic growth and in some cases negative growth, we do not expect a recovery in the metals until such cuts are implemented.  Although the market has for a long time relied on the view that the Chinese can singlehandedly support the market, they do not seem active buyers so far. On copper, the LME/Shanghai arbitrage window is closed more often than it is open and, although the market expected restocking when prices fell below 70,000 yuan per tonne, there is no real evidence that they are restocking even at 55,000 yuan. 

But while demand is slowing in other areas, there is little need for buyers to chase prices. Indeed, until there are signs that a broad-based recovery can begin or until prices fall to extreme levels as they did in 2008, it is difficult to envisage the return of a bull market.  That said, the market seems to have given up on the physical base metals ETFs that were rolled out a year ago - so far. We have always contended that investors did not flock to invest in the ETFs because the underlying price was too high. The fact the ETFs are now in existence may well mean that a wider investment pool will become interested in the metals once they see long-term value in the price.

This Week’s Quote: “Nothing travels faster than the speed of light with the possible exception of bad news, which obeys its own special laws.” -- Douglas Adams

This Week’s Story:  A senior citizen in Texas bought a brand new Corvette convertible.  He took off down the road, flooring it to 80 mph and enjoying the wind flowing through what little hair he had left on his head.

"This is great," he thought as he roared down the Texas Interstate.  He pushed the pedal to the metal even more.  Then he looked in his rear view mirror and saw a State Trooper behind him, lights flashing and siren blaring.

"I can get away from him with no problem" thought the man and he tromped it some more and flew down the road at over 100 mph.  Then 110, 120 mph. Then he thought, "What am I doing? I'm too old for this kind of thing." He pulled over to the side of the road and waited for the trooper to catch up with him. The trooper pulled in behind the Corvette and walked up to the man. "Sir," he said, looking at his watch.  "My shift ends in 30 minutes and today is Friday.  If you can give me a reason why you were speeding that I've never heard before, I'll let you go."

The man looked at the trooper and said, "Years ago my wife ran off with a Texas State Trooper, and I thought you were bringing her back."

"Have a good day, Sir," said the Trooper