n° 167 – July 2020

The Federal Ministry for Economic Affairs and Energy reports that the German economy is showing the beginnings of a tangible recovery, with capacity utilization not yet fully used. The expectation is that industrial activity will pick up in the coming months. 

Within the scrap metal industry, this slow improvement is already visible in the form of more demand for special grades from the automotive industry, which is expecting a “back to normal” situation by the fourth quarter. Nevertheless, risks persist for our sector as many small/medium-sized smelters and spare part producers are running out of cash because orders for the second and third quarters have not been enough even for at least a hand-to-mouth situation. This is a reason why some suppliers prefer a safe haven instead of insisting on extracting the very last Euro for their scrap.

Pandemic-related problems in the labour market are declining and June brought a better-than-expected unemployment rate of +69,000 when compared with May. Short-time working is shrinking too.

Thanks to the bulls who reactivated copper prices, there has been much better scrap availability than in previous months. As many scrap companies still do not use hedging tools to secure the price of stocked material, flows of copper scrap were very low in the early stages of the pandemic. Expensive stock was frozen, with small and medium-sized companies waiting rather than selling their copper scrap. After the LME increase, the frozen materials came on to the market and provided the industry with a big tailwind. As scrap supply climbed, copper mills increased the discounts.

The scrap import situation in China is influencing the German market, with big differentials between lowest and highest bids. Some grades are no longer correlating to the LME and follow a simple supply-demand equilibrium mechanism. The aluminium scrap market looks set to improve given the above-mentioned expectations for the fourth quarter.

Entering the holiday season, activities are expected to slow after the LME rally and the latest corrections. Generally, optimism is gaining more and more ground - which is very important for the whole economy.