Happy Independence Day. Be sure to reflect on all the great things this country provides, despite how easy it is to get sucked into focusing on the negatives. Enjoy time with family and friends, and please take extra care to ensure all your fingers are still attached come July 8.
Metal prices peaked around the end of June and have steadily drifted lower since. Driven by speculators and investors, the boom/crash cycle that recently played out with crude oil, iron ore, and bitcoin followed true with copper and aluminum. Aluminum is off $175/ton over the past 30 days while copper is down $500/ton. I suspect there is more room to fall as inflation and high interest rates continues to drag on economic growth, but see a relative floor near 2300.
Domestic demand for aluminum products seem to be trending in different directions depending on the segment. Cansheet remains strong as restocking and a shift toward domestically produced material continues. Building and construction is treading water as elevated mortgage rates and inflationary pressures keep new constructions capped. Extruded products and automobiles had been holding relatively steady, but as of late has seen some deteriorating demand. The question that remains to be answered is whether these recent downturns were in response to extended July 4 shutdowns or if we’ve experienced a step change in demand. The next 30 days will give us much greater clarity.
Unlike the demand side, the supply of scrap continues to be slow regardless of segment. Industrial generation is soft and peddler volumes just haven’t picked up the slack whether it be thanks to low steel prices (down again for July) or changes in the US consumer’s willingness to take the time and effort to recycle. As a result of these, coupled with increased scrap consumption, we have seen scrap spreads tightening all year despite a rise in MWT. Historically as aluminum prices increase, scrap prices (as a percent of MWT) widen out. The same is also true during summer months when scrap flows normally increase. Despite it being dead of summer, and MWT being ~15c higher than the start of the year, we have seen tightening in spreads on all scraps. Note the increases in can sheet grade scraps compared to B&C or billet scraps.
There are monumental increase in scrap melting capacity, both domestically and globally, coming over the ne next two years (a future topic for this article for sure). As those investments come online, scrap prices will break the historic trends and high-water marks. As always, if you have any questions or comments, I can be reached at 440-813-6325 or michael.anderson@schupan.com.
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