Commodity Markets Forecasts

Primary aluminum prices at the London Metal Exchange ended 2019 down less than one percent while average old aluminum cast and sheet scrap prices in the United States finished the year down more than 22 percent. Prices for several aluminum scrap grades fell to 30-year lows in 2019, including used beverage containers (UBCs). China’s scrap import restrictions have played a role in the divergence between primary and secondary prices. As compared to late 2017 when U.S. exports of all aluminum scrap (including UBCs and remelt scrap ingot) to China exceeded 75,000 metric tons per month, those shipments were down to just over 5,000 metric tons in November 2019.

The Chinese government’s intention to implement a new standards regime for imports of copper, brass, and aluminum derived from recycling will be a key development in 2020. But aluminum recyclers continue to face a host of other challenges including the low valuation of automotive scrap, competition from scrap imports, weaker aluminum demand, and a potential rebound in global primary aluminum output in 2020 which could result in a supply glut. Absent a sharp rebound in global aluminum demand, forecasters are concerned that aluminum capacity expansion plans will have to be curtailed in order to rebalance the market. Analysts from Morgan Stanley reported in December that “supply cuts in excess of one million tons are needed to prevent a drop to our bear case of $1,657 per ton in early 2020.”

Copper         
The global refined copper market is widely expected to see a supply surplus in 2020. According to the latest forecasts from the International Copper Study Group, world refined copper production is expected to exceed copper demand by more than 280,000 metric tons in 2020, reversing several years of supply deficits. A return to refined copper supply surpluses would only complicate the outlook for copper recyclers, who have been faced with excess domestic scrap supplies and declining export sales. U.S. exports of copper and copper alloy scrap were down 3 percent year-on-year during Jan-Nov 2019 as copper scrap exports to mainland China plunged from nearly 265,000 tons in Jan-Nov 2018 to just over 85,000 tons during Jan-Nov 2019. But improved trade with Malaysia (now the largest destination for U.S. copper scrap exports), India, Germany, Belgium, and other markets has helped to offset the decline to China.

 As with aluminum, China’s reclassification of high-quality copper and copper alloy scrap imports could significantly reshape the scrap market in 2020. By late 2019, copper prices had already benefited from the signs of progress on the U.S.-China trade talks. As Reuters reports, “A renewed sense of optimism has been evident in the sharp turnaround in fund positioning on copper, as ever the metallic bellwether for the risk-on-risk-off trade. The money men held a net collective short on the CME copper contract for most of 2019 but turned net long in the last days of the year.” A December report from the Goldman Sachs Group pegs the price of copper at $7,000 per ton in 2020.

Iron and Steel
In 2020, the World Steel Association projects Chinese steel demand will only grow 1.0 percent while steel demand in the rest of the world will increase 2.5 percent, driven by 4.1 percent growth in emerging and developing economies excluding China. As a result, global steel demand is forecast to grow 1.7 percent to 1,805.7 million metric tons in 2020, down from the 3.9 percent growth rate in 2019, according to worldsteel. But as with other commodities, any improvement in U.S.-China trade relations could have outsized implications for the global steel and ferrous scrap markets.

According to a press release from the U.S. Trade Representative, China has agreed to import at least $120 billion of U.S. manufactured goods in 2020, including iron and steel products. Improved trade deals with major U.S. trading partners such as China, Canada, and Mexico will play an important role for the iron and steel industries, along with ferrous scrap trade flows and domestic capacity expansion plans. For the first 11 months of 2019, the Census Bureau trade data show total ferrous scrap exports (excluding stainless and alloy steel scrap) from the United States were up 0.7 percent to 14.6 million metric tons on sharply higher exports of No. 1 bundles, cast iron scrap, and other grades that more than offset lighter loadings of shredded, heavy melt, and cut plate and structural. At the same time, total U.S. steel imports during the first 11 months of 2019 were down 17.3 percent as compared to the corresponding period in 2018. Major expansion plans announced by Nucor, U.S. Steel, and other domestic steel producers could significantly ramp up U.S. demand for ferrous scrap in 2020.

Lead and Zinc
Over the course of 2019, zinc and lead prices were among the worst performers at the London Metal Exchange, falling 6.5 percent and 4.0 percent, respectively, last year. The decline in prices for the sister metals came despite a drawdown in LME warehouse stocks, which typically coincide with rising prices. Reuters explains that the disconnect stems from the difficulty in getting mined material transformed into refined metal: “Smelters’ collective capacity to convert raw material into metal was last year hampered by a string of outages, including the fire at the Mooresboro refinery in the United States, the temporary suspension of the Skorpion refinery in Namibia and lower output due to an electrical failure at the Trail plant in Canada. Chinese smelters’ ability to lift run-rates, meanwhile, was constrained by the rolling environmental inspections that have become a feature of the country’s metallic supply chains.”

Looking into 2020, the International Lead Zinc Study Group is forecasting global demand for lead metal will increase 0.8 percent to 11.9 million metric tons while world refined lead supply is expected to increase 1.7 percent in 2020 to 11.96 million tons, leaving a global lead market surplus of 55,000 tons. The Study Group also sees a 0.9 percent increase in world demand for zinc being outstripped by a 3.7 percent increase in global zinc production, resulting in a global zinc supply surplus of 192,000 metric tons. In light of the expected supply surpluses, the World Bank is projecting average prices for lead and zinc at $1,950/mt and $2,450/mt, respectively, in 2020.

Nickel and Stainless Steel
At the London Metal Exchange last year, LME 3-month nickel futures ranged from as low as $10,530 per ton in January to as high as $18,850 per ton in September. At the same time, closing nickel stocks in LME warehouses dwindled from more than 207,000 tons at the end of 2018 to less than 65,000 tons in November 2019. Despite the on-going volatility in nickel prices and warehouse stocks, nickel prices outperformed the other major base metals in 2019, ending the year nearly 32 percent higher in London as compared to the end of 2018. However, prices for stainless steel scrap came under pressure late last year amid reports of excess scrap supplies in the United States and Europe. As a result, the price of 304 stainless steel scrap in the United States declined nearly 2 percent over the course of 2019, despite rising primary nickel prices.

In the short term, despite continued uncertainty regarding nickel and stainless steel demand, Fastmarkets Metal Bulletin reports, “LME nickel's technical configuration has improved and could continue to support its prices to recover higher in the short term.” The International Nickel Study Group is forecasting another global nickel market supply deficit this year, which could also help to underpin prices. Looking further into the future, Macquarie is projecting a recovery in the stainless steel market starting in the second half of 2020 and healthy growth in nickel demand from the electric vehicle battery market. As a result, they project steadily rising global nickel prices that are expected to reach $19,500 per ton in 2024.

Recovered Paper and Scrap Plastics
For paper and plastics recyclers, tighter import restrictions around the world, rising quality demands, and investments in domestic production capacity will remain key themes in 2020. Import restrictions in China have contributed to the restructuring of the global marketplace for recycled paper and plastic, but additional restrictions and stepped up enforcement of existing regulations continue to surface. India, for example, is now reportedly strictly enforcing its regulations that call for zero “putrefiable organic matter” to be contained in paper consignments and outline the tolerance for other “recyclable material” that may be present in each of the 48 categories of recovered paper grades.

U.S. exports of recovered paper, paperboard and pulp decreased nearly 11 percent in the first eleven months of 2019 as compared to the same time a year ago. Over the same time period, U.S. exports of plastic scrap plunged 39 percent lower year-on-year by volume. By type of plastic scrap, polymers of styrene were the only type to see a gain in 2019, while all other polymers realized double-digit decreases ranging between 28 and 69 percent. Looking forward, China’s role in the non-metallic scrap sectors will continue to loom large. RISI reports that ‘recycled pulp has become an alternative way for Chinese paper producers to obtain the recycled fiber they need… Chinese paper companies have plans to invest in significant amounts of recycled pulp capacity to expand recycled pulp production in different regions, mainly the U.S. and non-China Asia, to solve the potential fiber shortage problem caused by the further drop in RCP imports and the potential zero-RCP-imports scenario sometime in the future.’”