There are a lot of flashing red lights on the horizon. Conflicts arising in the Middle East are adding volatility to the oil markets, there is a lot of political uncertainty in the UK and General Motors is on strike in the USA. Fun times in Recycle-land!
The Federal Reserve has lowered interest rates for the second time this year owing to concerns over ongoing trade wars and the potential slowing of the US economy. The USA and China continue to make little progress resolving their trade differences but do seem to realize the effect these ongoing disagreements are having on their economies. The Presidential elections are getting started, with the Democrats working through who they will run against President Trump.
Scrap markets are very challenged domestically and outside of the USA. Secondary scrap aluminium prices have continued to deteriorate significantly over the last two months. Although there was some talk of secondary prices reaching their bottom, a further 10% decline has been seen since the previous report. The mainline secondary ingot price has dropped around the same amount. The LME traded index for that alloy is significantly below the published price, keeping downward pressure on pricing.
Ingot sales also appear to be softening, as some die-casters and foundries are showing signs of slowness. Shredded aluminium prices are being pressurized more than other items as the markets are at saturation level. Billet makers and extruders are very slow and quoting scrap at historically wide spreads. Rolling mills continue to quote wide spreads for most items. Contract negotiations are beginning for 2020 scrap supply contracts, and it appears to be a game of chicken as to who will go first.
Domestically, demand for copper and brass has slowed, with copper being of less interest at wider spreads. More copper consumers are out of the market and further out on appointments. Spreads are constant on Birch Cliff and are widening on higher-grade material. The export markets are feeling the pain of the abundance of scrap coming out of the USA. Prices are dropping and demand has slowed on most items.
At the time of writing, we are still waiting for China to release import quotas for the fourth quarter. Many believe that, once those numbers are determined, tonnages will be reduced again, resulting in further uncertainty surrounding what the markets will be able to absorb.
Although this is a very challenging period for our businesses, it is also a time to explore new opportunities.
Shapiro Metals (USA), Board Member of the BIR Non-Ferrous Metals Division