NONFERROUS METALS: COMPLEXITIES GALORE

The latest ups and downs will certainly make the coming years even more complex, say experts.


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Metal
 
June 1 2021
 
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The price of copper reaching historical highs, Covid spreading quickly and uncontrollably through India, one of the major markets, container shortages across most trade routes, and in the emerging markets,The Malaysian government looking to devise non-ferrous scrap import restrictions and a preshipment inspection system all of these factors together are adding to the challenges and complexities the recycling continues to face, said David Chiao of Uni-All Group Ltd (USA) and president of BIR’s non-ferrous metals division.

 In the Bureau of International Recycling (BIR) Nonferrous Quarterly Report released in May, he said over the last 16 years that he has served the BIR nonferrous metals division, the industry has lived through numerous challenges right from the 2008 global financial crisis, China’s National Sword import policy initiatives, and then its total ban on imports of scrap metal the US-China trade dispute to the Covid-related lockdowns around the world at present.

 “The latest ups and downs will certainly make the coming years even more complex.” To avoid the risk of port rejections under China’s new import classification requirements, including some No.2 copper reportedly disqualified owing to surface paint, many Chinese importers are favouring much higher-grade copper units, noted Shen Dong, OmniSource Corporation (USA), Board member, BIR non-ferrous metals division. Data for March indicate copper and brass imports of 171,996 tons for an increase of more than 90 percent over March 2019. Smelter operating rates have been duly boosted while China’s copper cathode production increased 7.29 percent year on year in April to 878,100 tonnes.

Raw material imports performed poorly, despite high demand for recycling cast aluminium alloy raw material, with the aluminium alloy ingot price also at an all-time high. This was mainly due to difficulties for overseas suppliers in meeting the new specification requirements, he stated. Penalties including fines and suspension have been issued by the Tangshan Ecology and Environment Bureau to several steel mills in its region for failing to follow emission management requirements, while others have been ordered to reduce production until the end of the year.

Guangxi province is said to be planning a five-million-ton aluminium recycling plant in the Pingguo area, entailing a US$ 1.5 billion investment. In India, “the last six or seven weeks will probably be remembered as one of the toughest times in Indian history,” reported Dhawal Shah, Metco Marketing (IND) PVT Ltd and senior vice-president of the BIR non-ferrous metals division. Almost every state had to battle the devastating effects of a second wave of Covid, he said, adding that the worst phase seemed to be over and “the next couple of months should hopefully see a major improvement in the situation as vaccine availability and the supply chain network are reinforced.”

 Economic activity has been lopsided, with some sectors performing better than others, he stated. However, the scars of the pandemic are deep and the economy is likely to witness stress even if there is a V-shaped recovery, Shah stressed. The backbone of India’s secondary non-ferrous industry is the automotive sector. With most plants announcing operational cutbacks owing to lockdowns, April and May have been very muted, creating a ripple effect for the recycling industry, he commented. Scrap processing yards have faced a further challenge during the summer months due to the routine migration of labour to their home towns. From a Middle East perspective, it has been an eventful year so far for the base metals, particularly the non-ferrous markets, noted Ibrahim Aboura of Aboura Metals and BIR non-ferrous metals division board member.

He said LME copper prices have reached an all-timehigh, doubling in value since last year amid a big shift from fears of global recession to an aggressive and bullish economic recovery, including concerted demand for the metal with increased moves towards green energy and recycling.

 “Other metals have followed copper’s lead as a result of this global manufacturing recovery, creating what is currently a commodity super-cycle.” Amid this global recovery and increased demand for metals, the Middle East has seen more scrap being offered and exported from the region, he added. As regards Covid, Aboura said India is dominating the headlines with its recent surge to well over 24 million cases, leading to more travel restrictions and lockdowns across major cities. Its demand for scrap came to an almost complete stop, thus slowing metal movements from the Middle East to India, a major buyer of this region’s non-ferrous scrap.

 The vaccination programme in the GCC is progressing rapidly and there is more easing of restrictions, he said. The domestic economy and business conditions are improving in South Africa, but scrap metal is still in short supply and prices being paid are very high, remarked Sidney Lazarus of Non-Ferrous Metal Works (ZAF) (Pty) Ltd and Board member of BIR non-ferrous metals division. The International Trade Administration Commission (ITAC) is continuing to send representatives to yards to verify export applications. ITAC, the Department of Trade & Industry and the Treasury are proposing to introduce an export tax on scrap metal by August 1 this year, he said.

Scrap dealers are still said to be melting copper, brass and aluminium into blocks, ingots and billets, thereby causing a domestic shortage of suitable scrap metal. The US GDP growth for the first quarter was 6.4 percent, slightly ahead of government estimates, but the most recent employment figures disappointed the markets, with fewer people going back to work than expected, and by a large margin, said Rick Dobkin of Shapiro Metals (USA) and Board member of BIR non-ferrous metals division. The USA is seeing a reduction in Covid infections and fatalities, as well as rising vaccination numbers despite rates having plateaued.

More businesses are reopening but many are struggling to hire staff with severe labour shortages hampering this reopening and keeping manufacturers from increasing their build rates, he added. Metal prices are at historic or multi-year highs. The higher terminal markets have not yet translated into wider spreads for all primary aluminium scrap as most of this material is in very tight supply, reported Dobkin.

The all-in price for US primary aluminium has climbed close to 20 percent since March, while the increase in the regional Midwest premium of more than US$ 150 per ton in the last two months has been attributed to very tight primary supply, high freight rates and the continuation of tariffs on aluminium imports. “There is still very strong demand and spreads for profile scrap and most rolling mill alloys, although the spreads for UBCs are now starting to widen,” he noted, adding that secondary aluminium prices have recently stalled as issues persist in the auto supply chain that are impacting production levels. Export activity is still a challenge with spotty container shortages and limited transportation services.

A positive trend has been reported within the Benelux market as far as Covid is concerned with cases declining in all three countries and the numbers vaccinated growing quickly. “As a result, governments are looking to open up society once again and have come up with what is referred to as a Summer Plan which could mark a positive step back towards our pre-Covid lives,” said Jurgen van Gorp, Metallo Belgium N.V. and Board member, BIR non-ferrous metals division.

At present in the Benelux market, less material seems to be finding its way into the yards and this might become a concern in the long run given the heavy sales of recent weeks when markets began to head sharply higher, he noted.

On the aluminium front, “the car industry appears to be feeling the impact of challenges surrounding the availability of electronic components.” With these not being as easily accessible at present, he said car industry demand for aluminium seems to be off. Within a German economy highly influenced by the automotive industry, chip shortages are leading to production stops, noted Murat Bayram, European Metal Recycling Limited (GBR) and Board member, BIR non-ferrous metals division. The second quarter has already been affected by this shortage and some factories would have to close during the summer holidays, he said. Moreover, the German government has confirmed there will be Euro 3 billion support for the domestic development of battery cells for electric vehicles. As copper touched new highs, activity within the red metal market has increased, he wrote. “Demand for copper is good but, owing to the fast-rising market, many recycling companies have faced a big margin call for hedged positions, leading to less liquidity and more financing pressure.”

As European mills were well supplied, it was not easy for small and medium-sized companies to have additional access for supply to cash the copper scrap, Bayram added. Regarding aluminium, he said the positive trend continues and “international demand for scrap is very healthy.” Some primary and secondary smelters have reported full order books until the next quarter. The only threat is the shortage of chips which might lead to a bigger automotive shutdown than expected, he added.

On the UK market, Susie Burrage, Recycled Products Ltd (GBR) and Board member, BIR non-ferrous metals division, said non-ferrous prices are extremely competitive as more merchants attempt to expand their businesses by purchasing new equipment such as shredders and granulators or starting to export material directly.

 “The recordbreaking LME copper price did not encourage any new material into this tight market. Recent volatility and price fluctuations have left traders struggling to set their daily prices and most are now sending out their price lists later in the day,” she commented. There is still strong demand from Chinese and Far East markets, and the margins have not widened as would normally be expected with such a significant price rise.

There is strong demand from India for certain aluminium grades, in particular alloy wheels, she said. Demand and supply of lead within the UK has also remained stable, with little movement in the market. “There have been fire and flames in recent weeks, with crazy LME copper pricing adding instability to a market that has already been abundantly tested,” observed Leopoldo Clemente of LCD Trading S.R.L (ITA) and Board member, BIR non-ferrous metals division. Non-ferrous metal price increases are threatening to compromise production restarts while making products less competitive, he said. The recovery in turnover has been significant given that materials stored over recent months are finally starting to be sold, thus accounting for an annual jump of 11.1 percent. For instance, he said, the automotive sector, which last year recorded a decline of 14 percent, is forecasting growth of 6.6 percent for 2022; meanwhile, the metallurgical sector, which recorded a 10.7 percent decline in 2020, is expecting growth of 4.3 percent next year. The prolonged post-2009 crisis has strengthened the Italian production system which today is well-structured to face the recovery phase, and exports were the pre-pandemic driving force of this process, Clemente stated.

“The weakness of domestic demand had in fact pushed our companies towards exports, making them stronger and improving their competitiveness. In this economic transition, Italy is in an excellent position to take advantage of the recovery in global demand.”

 In Eastern Europe, the copper rally has been at the forefront and centre of market participants’ attention of late, with the LME price exceeding its best-ever levels, reported Natallia Zholud of TRM Group (BLR) and Board member, BIR non-ferrous metals division. “This has kept scrap yards busy and has stimulated red metal flows, although supply is still lagging behind demand.” Some players, especially smaller companies with weaker hedging practices, are tempted to hold on to available inventory hoping for higher LME levels, she noted.

On the negative side, higher prices and margin calls are putting additional pressure on companies’ finances, with the same volumes requiring more working capital, she observed. On a larger scale, building and infrastructure projects risk outstripping their budgets, with supply chains disrupted by higher raw material prices.

 

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