Nonferrous metal prices and economic gridlock
by Irwin Rapoport

The sudden and sharp declines in the value for various nonferrous metals and drop in demand for them, domestically and globally, are having a negative impact on the bottom lines of scrap dealers and metals brokers.

The values for copper, aluminum, stainless steel and brass have declined between 30 and 70 percent since last August. The market has slowed down dramatically and in some cases, has reached a standstill as scrap dealers no longer purchase some metals and brokers cannot find consumers to purchase them.

“Secondary aluminum items, coppers and stainless steel have suffered the most,” says Stephen Moss, vice president of Pennsylvania-based Stanton A. Moss, Inc., a nonferrous metals brokerage firm that specializes in aluminum products but also handles copper, magnesium, lead and zinc. “Secondary aluminum prices have dropped over 50 percent. At one time I was paying close to $.80 per pound for cast aluminum and now I am paying under $.30 per pound. Mill grade items have dropped in a similar fashion over the last three months.”

Moss, whose firm depends upon the activities of scrap yards, notes that the firm is suffering due to the decline in metal values and volume of scrap that can be bought and sold to consumers.

“The timing and swiftness of the drop caught most people by surprise,” he says, “and there are many scrap dealers that have more secondary-type scrap like aluminum sheet, cast and lower grade items than they can sell right now.”

Despite the decline in prices, these metals still have value, so the scrap processor has to stockpile.

As the market started to fall some scrap dealers, said Moss, were reluctant to sell on the hope that prices would bounce back.

“Others kept selling the same as they would from month-to-month and did not get caught in as bad a situation as those holding excess material in a time when demand has fallen even further,” he said.

When asked what will happen to the metals that would normally enter the market, Moss replied, “Scrap dealers are working now to change their pricing situations with industrial accounts and pricing is based on when they can sell it or they are not accepting materials at all.”

Nor are many secondary metal producers or consumers in a position to be entrepreneurial and purchase excess metals at the current low prices. “Fundamentally the whole industry has changed from consolidation of scrap yards, mills and secondary consumers. In the past, privately held scrap yards and all types of aluminum producers (especially the secondary aluminum producers) could take advantage of the weak markets and stock pile inventory for the future.”

The export market has also slowed down. Purchasers of scrap in countries such as China, India and Bangladesh currently have material being shipped to them at a contracted price, but with the drop in prices, they will not accept the orders outright or are demanding price reductions.

While a quick market correction would be welcomed, Moss is unsure how long the industry can afford to remain in the current stagnation.

“With the forecasted downturn in the automotive sector for the next year or two,” he said. “The current situation is definitely going into the first quarter of 2009 and there will probably be an excess of scrap.”

William Goldkind, the owner of Crestwood Metal in Holbrook, Long Island, says his firm is experiencing a rough patch.

“The value of our inventory has decreased by 50 percent,” he said. “There is virtually no metal flowing – it’s almost at a total standstill, just like credit has frozen up. Chrysler and General Motors are the biggest users of cast aluminum in the world and they are not buying metal.”

Goldkind says this would be an opportune time to purchase metals at a low price, but notes that as there are no purchasers for them, he feels stockpiling does not make sense.

“If you felt that last week the price was good and you wanted to buy a lot of metal,” he said, “this week the price is even less and it looks like it will be less in the immediate future.

“We normally buy 200,000 to 400,000 pounds of cast aluminum a week,” he added. “Now we tell the people that supply us that we just can’t buy it, that we are temporarily out of the market.”

Like Moss, Goldkind says the current situation is an unwanted perfect storm. Copper prices, he noted, dropped from $4 a pound 2 months ago to $1.70 a pound and that stainless steel went from $1.30 a pound 6 months ago to $.30 a pound.

“I don’t care if the price drops to $.05 a pound if I can buy it for $.01 a pound and sell it for $.05 to make the spread,” he said, “but when you have situations where you can’t buy it or sell it, then it becomes a very dangerous situation.

“I have 65 people here that have to be paid every week,” he added. “We have 3 furnaces and we shut down 2. It doesn’t pay to melt the metal because I can’t sell it. I might as well leave it in a pile until something turns around.”