Gauging the strength of nonferrous pricing

While guilt by association is a familiar concept, in the case of nonferrous scrap, it’s more like uplift by association. An increase in ferrous scrap pricing and flow that began in the fourth quarter of 2019 has benefitted a number of nonferrous scrap grades heading into 2020.

After declining throughout much of 2019, ferrous scrap prices increased by about $20 per ton on average in the U.S. in the November 2019 buying period and by another $30 per ton in the December buying period. This upward momentum continued into the January buying period, which also saw a pricing increase by $30 per ton generally, according to Fastmarkets AMM’s surveyed pricing.

No. 1 heavy copper and wire scrap was selling for $2.19 per pound on average as of early January, while No. 2 heavy copper and wire scrap was selling for $2 per pound, according to surveyed pricing from Fastmarkets AMM. This compares with an average U.S. price of roughly $1.95 per pound for No. 1 heavy copper and wire and $1.82 per pound for No. 2 heavy copper and wire in the December 2019 buying period.

Painted aluminum siding was selling for 25 cents per pound in the January buying period compared with roughly 20 cents per pound in December 2019, according to Fastmarkets AMM surveyed pricing.

Despite the relatively mild start to the winter season in the Midwest and the higher prices, a nonferrous scrap trader based in that region says nonferrous scrap remains in short supply though flow has improved somewhat.

Better movement

“Flows are picking up across the board,” says a nonferrous scrap trader with a company that has processing operations in the Southwest. He attributes that to the “excitement” created by the increase in ferrous scrap pricing, which helps to bring nonferrous scrap into the yards.

“There is an increase in quoting as well as flows,” the Southwest-based trader says of the nonferrous scrap sector. “It’s changed a little compared with the fourth quarter. Things were relatively slow in generation as well as in consumption.”

Copper has benefited somewhat more from the uptick, the contact in the Southwest says. “Relative to aluminum, copper is in a better position with better balance in the domestic market. Aluminum is still pretty out of balance.”

His company primarily handles postindustrial scrap as well as material from other scrap dealers in the region.

“Demand is slightly better, depending on the commodity,” says the nonferrous scrap trader based in the Midwest. His company has scrap processing operations throughout the region. “Export is much better,” he adds, “and prices have bounced off their lows for most nonferrous commodities.”

In terms of domestic generation, the source in the Midwest says it is “decent but not great” for copper, adding that buying material was difficult when COMEX pricing dropped to the $2.60 per pound range toward the end of last summer. COMEX copper pricing increased to the $2.80 per pound range on the news of the U.S. and China reaching an agreement on Phase One of a trade agreement in December of last year. The Midwest-based trader says that if COMEX pricing stays near the $2.80 level, it could help to bring out additional copper scrap. However, he adds, “Some people are always waiting for the next big move.”

“Spreads for bare bright No. 2 are wider than based on the available material,” says the source in the Midwest. “I think that will change as consumers get back into the swing of things.”

He says aluminum generation also has slowed, adding that secondary producers and primary mills realize this is the case. “Three to six months ago, they could buy whatever they wanted whenever they wanted,” the Midwest trader says. “Now, they are paying a premium for spot material.

“Six months ago, everyone was in the same boat,” he says of aluminum scrap consumers. “Today, one consumer might be short on tweak or turnings.”

A copper scrap processor who wants to remain anonymous says that while demand has picked up somewhat, domestic consumers are still measured in terms of their buying and will be for the next few months. “They are not aggressive in their purchasing yet. Demand is still slow in terms of what their needs are for 2020.”

He adds, “Pricing has stabilized, but spreads are still fairly wide in that it is a buyer’s market.”

Despite the recent pickup in the nonferrous scrap sector, Todd Safran of Safran Metals Inc., a nonferrous scrap processing company based in Chicago, says, “Things aren’t getting any easier, but you have to continue to find your niche and ride out this roller coaster.”

Overseas interest

The Midwest-based trader characterizes supply and demand for copper as being in “pretty good balance,” adding that the export market has helped to pull some material out of the U.S. that normally stays in the country, such as Nos. 1 and 2 copper.

The trader based in the Southwest agrees with this assessment. His company is exporting copper scrap, particularly in the form of birch/cliff (No. 2 copper wire/No. 2 copper solids and tubing) to countries in Southeast Asia, Asia and Europe. “They are buying at a very healthy spread, which tells you that even with the tariff, there is just good demand,” he says.

He says Chinese buyers are buying material with the highest copper content they can in light of the tariffs China is assessing on copper scrap shipments from the U.S.

“If you look at brass, export is really depressed because the tariff is too taxing,” he adds.

Aluminum scrap is not enjoying the same interest from export markets, however. “Everything globally is tough right now,” the Southwest-based trader says. “Asia, specifically Korea, is swamped with aluminum.”

While export demand is off compared with the years when China dominated buying, Safran says it has been increasing for the last couple of months. “I won’t say it’s setting the world on fire, but I am seeing it come back to life a little.”

A nonferrous scrap broker based in the Southeast says the quotas the Chinese government issued for nonferrous metals imports in the first quarter are “surprisingly generous.”

The country permitted an additional 26,566 metric tons of copper scrap, 7,544 metric tons of aluminum scrap and 3,180 metric tons of steel scrap to enter China in the first quarter in a second batch of quotas issued in early January. The first batch of quotas for the quarter was announced in late December 2019. In that batch, nearly 271,000 metric tons of high-grade copper scrap and nearly 275,500 metric tons of aluminum scrap quotas were issued.

The broker adds that “some consumers think it may be a gesture of the U.S.-China trade war standing down or maybe Beijing just beginning to realize the importance of scrap.”

Additionally, the Chinese central government has announced that as of the second quarter of this year, high-grade copper and aluminum scrap that meets new purity standards will no longer be classed as waste and can be imported into the country in unlimited amounts.

Despite the unexpectedly generous quotas from China, Safran says U.S. scrap processors must “get as creative as possible and forge new relationships” to keep material moving.

“If you have a great product and great relationships, you’re going to be able to find good homes [for material],” he says. “We are playing the long game.”

Predictions for the year ahead

Most of the sources contacted for this article say they are “cautiously optimistic” about the outlook for copper and aluminum scrap in the year ahead.

However, a second broker based in the Southeast speculates that 2020 will not be a good year for aluminum scrap. He says the notion that aluminum scrap pricing found the floor in December was wishful thinking on the part of suppliers, as a limited number of mills need material.

Regarding the tentative optimism he was feeling in early January, the trader based in the Midwest adds that it could “go away in the blink of an eye” because of the lack of visibility that characterizes the business today and the geopolitical forces that have been shaping the nonferrous scrap sector, including tariffs and trade wars and the potential for actual war in the Middle East.

Safran says he thinks the first quarter of the year will offer more of the same, though he is hoping for increased activity in March and April. “We need to give it a few months for the system to flush itself out,” he says. “I think there will be a better outlook for the next three quarters of the year.

“Things are happening [trending] to the positive,” he adds.

“There is a brighter path ahead,” the Southwest-based trader says. “We are not out of it yet, but there is excitement, movement and flow.

“I don’t think we are over the hump,” he continues. “It still is a difficult marketplace, but it is a little better than in the fourth quarter.”

This article originally appeared in the January/February issue of Construction & Demolition Recycling magazine. The author is editor of Recycling Today, a sister publication to Construction & Demolition Recycling. She can be contacted at dtoto@gie.net.