Non-ferrous update: prices cool as economies weaken

Increasing uncertainty amid soaring energy costs and rising inflation rates dampen investor’ enthusiasm.

Metal markets have been increasingly characterised by uncertainty in recent weeks. The consequences of the coronavirus pandemic and the resulting problems in the global supply chain are one reason, as well as the continuing Russian attacks on Ukraine. New pressures are being imposed by higher energy costs and inflation which are cooling markets.

The metal industry is primarily affected by the sharp rise in energy prices and there are two key problems. On the one hand, the metal works and smelting plants depend on energy for production. When energy prices rise sharply, metal production becomes uneconomical because Europe is no longer competitive. On the other hand, buyers of the metals such as the automotive industry, are also affected by high costs and are ordering more cautiously than before.

In short: planning is difficult and market participants act extremely warily. The crisis is currently having a concrete impact on metal prices. In recent months, aluminium, copper and nickel had all achieved record prices on the London Metal Exchange but the trend seems to be over, at least for now. LME prices have been falling for the past few weeks and scrap prices are following the trend.

Investors wary

Another reason for falling metal prices, according to analysts, is that financial investors have turned their backs on non-ferrous metals. They believe the policy of the European Central Bank in the context of sharply rising inflation in the euro zone has shifted the focus of financial investors towards other forms of investment.

As an example, the Financial Times reported in late June that copper was down over concerns that ‘demand will be crimped by central banks rapidly raising interest rates to curb inflation and by China’s tough Covid-19 lockdown policies’.

S&P Global, meanwhile, noted in May that global aluminium users signalled renewed weaknesses in the health of the sector. A further sharp fall in output was coupled with the steepest reduction in new order inflows since May 2020. This pushed the headline PMI below the neutral 50.0 mark for the first time in four months and to the lowest level for two years.

‘Regional data signalled slower improvements in operating conditions at both US- and Europe-based aluminium users, while firms in Asia signalled the sharpest deterioration in conditions since the initial onset of the pandemic in February 2020,’ it said.

US volatility

In the US, a Producer Price Indexes report from the Bureau of Labor Statistics indicated that May’s PPI changes showed volatility across recycled commodities. Most recyclable materials were down for the month but up for the 12 months ending in May with recyclable aluminium increasing 24.1% year-on-year. Aluminium, copper, iron and steel, and nonferrous all peaked in April 2022 but turned down in May 2022.

Amid rising demand from India, South Korea, Mexico, and Canada, US exports of recycled aluminium increased 1.7% year-on-year during Jan-Apr 2022 to more than 665 000 tonnes.

India has become the top overseas market for US recycled aluminium, with shipments up 33% so far this year to nearly 148 000 tonnes. However, shipments to Malaysia are down 26% to around 108 000 tonnes. Mainland China, once the main overseas market for US recycled aluminium, has dropped to 14th spot. In dollar terms, exports are up 27% to more than….

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