BIR World Mirror on Non-Ferrous Metals: Markets desperate for an injection of confidence and stability
A concise summary of the BIR World Mirror on Non-Ferrous Metals – Issue July 2022. Full version with detailed market reports available in the Members Only section of the BIR website.
Markets that had looked strong and resilient as recently as April this year have become decidedly fragile in June and July, according to expert feedback contained within the latest World Mirror on Non-Ferrous Metals from the BIR world recycling organization. Metal prices have undergone a downward correction of typically 10 to 30% and have remained vulnerable to the high levels of volatility reported throughout 2022.
With global headlines dominated by bad news, metals markets are deemed unlikely to receive an injection of confidence and stability in the near term, especially as holiday periods are now curtailing business activity levels in many parts of the world.
The list of challenges includes: high inflation globally and interest rate hikes; talk of bad debts piling up in China’s housing sector; uncertainty over gas supplies to Europe as a result of the Ukraine conflict; a growing labour market crisis; a continuation of transportation difficulties; and the strength of the US dollar which, in mid-July, achieved parity with the Euro for the first time in 20 years.
One of the most key recent developments was the US Federal Reserve’s largest hike in its benchmark interest rate in approaching 28 years, with the ongoing fight against inflation expected to bring further increases. Inflation is a concern nearly everywhere, with latest figures including 7.7% in Mexico and 9.4% in the UK - the highest numbers recorded in 21 years and 40 years, respectively. The Fed’s policy and the strength of the US dollar have had a dampening effect on demand for metals.
Meanwhile, the squeeze on energy supplies has had a major impact on German industry - to the extent that smelters who did not secure a long-term energy supply contract are facing difficult times while some smaller foundries are running out of cash and could even go bankrupt.
The market in Ukraine is continuing to function although street collections of brass are reportedly only a fifth of pre-conflict volumes. Domestic copper collections are sufficient to cover internal demand whereas exports and imports are said to be non-existent owing to slower demand and the gap between the official and cash currency rates. At the same time, scrap suppliers in Russia are carrying plenty of stock purchased at higher LME levels and currency rates, which they are not ready to move at current market prices owing to the absence of relevant hedging.
To add to all these challenges, the recycling industry is continuing to experience pressures on the free movement of scrap. Following the introduction of an export tax on scrap metal in South Africa, there is now talk from the country’s Department of Trade & Industry and its Treasury of a ban on exports of scrap metal in the next few months. It is reported that there have been fewer export applications over recent weeks.
There is still some good news to be found, however, among a number of the world’s key growing economies: India is still expected to expand its GDP by at least 7% this year while the 0.6-point increase in China’s PMI in June to 50.2 is regarded as a positive sign of economic and manufacturing sector recovery. The country is looking to bolster this recovery with a stimulus package including 140 billion yuan in tax rebates and 300 billion yuan in railway construction bonds.
China has also announced plans to increase ferrous scrap consumption to 320 million tonnes by 2025, along with a goal of 20 million tonnes of recycled non-ferrous metals in the next five years. China Customs data indicate that copper scrap imports totalled 158,000 tonnes in May for increases of 16.9% month on month and 13.5% year on year.