A tale of two metals.

Copper and aluminum are poised to move in divergent directions. While both commodities have had significant runs throughout much of the year, copper seems to be turning sharply lower, while aluminum seems to be holding a better position.

For copper, whether the recent move is part of the long-awaited downward correction is still uncertain. However, from discussions with a host of scrap recyclers, the steady decline in prices during the past several months is a situation that has long been predicted.

Magnifying the problem for copper is the sense that demand from China, the largest consumer of the metal, is slowing down significantly. According to a number of business reports, while China is slowing its purchases, inventory levels are jumping, with some reports noting that warehouse inventory levels are at their highest since early this year.

One larger copper scrap handler notes that substitution is resulting in a total absence of domestic demand for copper scrap at the present time (middle November), something the trader has never seen before.

While domestic orders are either difficult or impossible to come by, the decline in scrap prices seem to be hitting a floor. While downward pressure continues, several traders note that at the $3 level, prices have bounced back up a little. Whether this is the proverbial "dead cat" bounce is uncertain. Through the end of 2006 there isn't expected to be any major push toward the upside.

Also, for primary copper (and to a lesser degree copper scrap), it appears that hedge funds and financial houses, which played such an active role in driving up copper prices this year, have backed out of their positions and are seeking other investment vehicles such as stocks. How this will affect copper scrap is still a bit uncertain, though many handlers of the material say that the heavy presence of financial houses in the commodity trading business created much of the volatility that has been seen during the past year.

While China is reportedly cooling its purchases, several dealers say that there still is an interest by Chinese buyers for the metal, although the downward spiral in copper scrap prices is resulting in more of these prospective buyers standing on the sideline while prices continue to decline.

Exacerbating the China situation has been some log jams that have cropped up at Chinese ports. One exporter notes that some attempts at smuggling have resulted in a near standstill in container offloading for a period of time, which further created problems for copper.

On the other side, aluminum, although cooling a bit from its run earlier this year, seems to be in a more bullish mode, though there still is some softening in that market as of late.

Going forward into 2007 aluminum should hold up fairly well, with several markets helping to keep the commodity in decent balance. One processor of aluminum says that he sees a bullish transportation market, as well as a stronger manufacturing business, next year, which should keep aluminum scrap prices from declining too precariously.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at www Recycling Today.com.)