Copper pricing in the first two weeks of 2016 has pointed to another lackluster year, as the market continues to show restrained demand for copper and brass compared with the prior glory years of robust Chinese economic growth.
As of Jan. 11, copper was down to $4,412 per metric ton ($2 per pound) on the London Metal Exchange (LME), hitting a low point it had not reached since the recession of 2009.
Financial and commodities analysts who cover China are predicting a restrained construction and infrastructure building climate in that nation.
For copper to regain any price momentum, the necessary adjustments likely will have to be made on the supply side. In the scrap market, that already has been happening, according to many recyclers. However, primary copper production and existing inventories of finished and semifinished copper may take longer to respond to the new demand level in China.
Scrap recyclers have thus far spent the winter of 2015-2016 coping with declining prices, narrower margins and tighter supply across the scale.
One of the few, albeit unpleasant, cures for falling volumes is the shuttering of facilities as the difficult conditions linger, the Californian says. “Some competitors are exiting the market due to financial issues, and this is helping flows at existing yards to some degree,” he comments.
Aluminum pricing also has been on a downward trend, with many producers of the light metal having difficulty managing through the lower price environment as well as competition from increased finished and semifinished exports from China.
Profitability has been hard to come by among publicly traded scrap recycling firms in late 2015, and managers at these firms as well as owners of privately held companies all appear to be bracing for a year of reduced volumes and tight margins in the nonferrous scrap sector in 2016.
Scrap processors contacted by Recycling Today in January 2016, all of them family business owners, say careful buying on the trading side and cost cutting on the operations side will continue to be as crucial to getting through 2016 as they were in managing through a difficult 2015.
A recycler in Texas says enough buyers remain in the market to make things difficult for everyone. Among those, competitors who chase material for cash flow purposes while evaporating their own margins are the ones who cause the most strife, he says.
“Some competitors are exiting the market due to financial issues, and this is helping flows at existing yards to some degree.” – a recycler based in California
About the only weapon against such buyers, he adds, is to “agree to pay or advance money on loads where other buyers are offering to make their payments in the 30-to-45-days range.”
As of mid-January overall economic news consisted of a mixture of encouraging employment numbers in the United States in the face of declining global stock prices, falling commodities prices and widespread concern by economists and bank analysts about the condition of China’s economy and the opacity of its economic data.
There are no guarantees that the global economy is heading uniformly downward, but scrap recyclers are among those who seem convinced that they are better off preparing for the worst in 2016 while still holding out hope that pleasant surprises could still occur.