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Uncharted territory.

There may be a correction taking place with some nonferrous metals, but don't tell that to handlers of nickel and stainless steel scrap. With the expectations that the summer slowdown would result in an easing back of prices, a number of handlers of these materials say that markets are so confusing now that it is impossible to figure out where they are headed. One scrap handler asks, "Nickel and stainless steel are in some uncharted water right now; when is it going to make a correction?"

As price and movement continue to create greater uncertainty in the market, some end consumers are making substitutions in an effort to mitigate their costs.

Several dealers of the material say that continued strength in nickel and stainless steel is being driven by the healthy appetites of U.S. and European consumers. However, Asian buying has not been a major factor in the run of nickel and stainless steel scrap.

While prices have been climbing, a paucity of scrap is available, which is somewhat surprising to several vendors who had expected to see more obsolete scrap being brought onto the market. The lack of supply will likely keep nickel prices from falling too sharply.

Through the first half of July, nickel prices continue to rise, with one industry report noting that nickel prices had climbed 11 straight days during the first half of July. At the same time, inventory levels for the metal on the London Metal Exchange continued to decline. Prices have reflected this, with the LME climbing to record levels. Adding to the overall trend, several industry observers say that there is no reason to believe that prices won't continue to climb upward from these levels.

In fact, some analysts who are tracking the LME say that they feel there is not any significant reason why primary nickel and new and scrap stainless steel prices won't continue to move upward in the short term.

The ability of consumers to push through surcharges also indicates minimal resistance to higher nickel prices.

Several other nonferrous metals could be moving upward, as well. Copper, which has enjoyed a spectacular run through most of this year, had been trending downward recently. However, a combination of a pickup in commodity buying by investment houses, as well as the possibility of a strike at BHP's Escondida mine in Chile, the world's largest copper mine, have helped to reverse the downward trend.

The union contract with the Escondida mine ends in August, and, according to several reports, the union has slowed down production, which is resulting in an overall decline in the copper supply.

The decline in supply, as well as the strong buying by trading houses, is keeping copper inventories at low levels.

According to Bloomberg, by the middle of July, copper inventories on the LME were at three days.

Aluminum markets are showing some signs of modest softening moving into the summer. Several industry observers note that summer traditionally means weaker auto production and slower housing construction, two large components of aluminum demand.

However, most aluminum industry observers still say they feel the primary and secondary aluminum markets have underlying strength, which should result in a higher floor price for the commodity moving into the fall.

In talking to a number of recyclers dealing in nonferrous grades during the past several weeks, the consensus seems to be that the market has an overall surreal quality, with sharp movements exacerbating uncertainty. As commodity bears wait for a sharp correction to adjust prices to more equitable levels, the reality is that while volatile, markets for copper, nickel and zinc have been showing strong upward movement and may have quite a while to run before they retrench.

(Additional news about nonferrous scrap, including breaking news and consuming industry reports, is available online at
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Title Annotation:NONFERROUS
Publication:Recycling Today
Geographic Code:1USA
Date:Aug 1, 2006
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