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Non-ferrous metals - 6 July 2012

The UK non-ferrous recycling markets have been depressed and quiet so far this year.

Inter-works prices for copper, brass, phosphor bronze and gun metal have slipped steadily down in the past few weeks. Last week’s inter-works prices for aluminium and lead, which were also weak in the market, fell by £25-£200 per tonne. dependent on grade.

In Europe, the crisis goes from bad to worse, and non-ferrous stocks are low. Cash flows are very tight, with most recycling firms weighed down by high fixed costs and capacity utilisation rates typically as low as 50-60%.

Only the serious shortage of all grades of all metals is preventing even lower prices.

Almost in tandem with recycled metal markets, London Metal Exchange (LME) prices have also dropped during the past four months:

  • Copper is down by $1,036 (£660) a tonne from an average of $8,456 in March to $7,420 a tonne on 28 June. The red metal was $8,042 in January.
  • Aluminium has fallen by $350 a tonne from an average of $2,182 in March to $1,832 a tonne on 28 June. It was $2,143 in January.
  • Lead is down by $293 a tonne from an average of $2,061 in March to $1,768 a tonne on 28 June. Lead was $2,093 in January.

As you would expect, zinc, tin and copper alloys such as brass, phosphor bronze and gunmetal are following similar trends.

This leaves LME metal prices and inter-works prices for recycled non-ferrous metals on similar downward spirals.

Obviously, this tough state of affairs is afflicting all sectors of the UK recycling trade. But, unlike the causes, which are firmly rooted in the financial woes afflicting Europe and the US, any solutions must be global So far, there has been nothing UK recyclers could do to change the daily grind of coping with falling markets.

In the short term, there is no solution, and the only way forward depends largely on the future of emerging markets in the Far East, and China in particular.

As we all know, China’s economy is booming, as is its insatiable appetite for non-ferrous metals. Even though Chinese recycling rates and technologies are climbing, so are non-ferrous imports.

This is borne out by Chinese customs data, which shows that, despite a degree of instability due to the European debt crisis, Europe and the US are still the main sources of non-ferrous imports. In short, China is still heavily reliant on imported non-ferrous metals, demand is increasing and it is unlikely to change in the near future.

Such facts were verified by the news in the middle of last month that Hong Kong Exchanges and Clearing had entered into a deal to buy the LME for £1.39bn. The deal, scheduled for completion by the fourth quarter of this year and financed by cash plus £1.1bn in bank loans, is subject to approval by LME shareholders, but rejection seems unlikely.

It is not too high a price to pay for an institution that accounts for 80% of the world’s trade in non-ferrous and other industrial metals.

Moving to domestic markets and taking a close look at aluminium, UK demand has grown steadily during the past 40 years. Its production still plays a big role in the wider UK manufacturing supply chain.

But the financial crisis has had a major impact. Output from all the UK’s primary smelters dropped by 60% to 13,000 tonnes a year in 2009, a factor that has had a wide impact on aluminium production from primary and recycled sources.

Three years ago, the three biggest primary aluminium smelters in the UK were Anglesey Aluminium and two others owned by Rio Tinto. Now, Anglesey Aluminium, with an output of 145,000 tonnes a year and Rio Tinto Lynemouth, with an output of 178,000 tonnes a year (around 40% of domestic production) are both closed.

The first closure in September 2009 and the second in May 2012 left just Rio Tinto Lochaber, with an output of 43,000 tones a year.

The main issue behind these closures is that the production of aluminium by primary smelters is an energy-intensive process - there is no way to avoid the use of huge amounts of electricity in its production. The process is set in stone, and pressure on the industry is set to rise drastically in the next few years mainly due to climate change legislation and a likely rapid rise in energy prices.

Clearly, with 92% of all UK net supply imported in 2010 and only 69% in 2007, UK aluminium users are now heavily reliant on imports. It is a situation that probably tolls the death knell for primary smelting in the UK.

But as the closure of capacity will invariably boost demand for recycled metal, it does not mean the collapse of the entire sector.

Our secondary aluminium industry, with more than 39 plants in operation across the country, will live on. The loss of primary capacity simply allows it to expand and replace primary smelting with a much cheaper alternative that takes only 5% of the energy.

Fundamentally, this proves that the use of recycled metal is far superior to the primary smelting route, and there are no differences in terms of quality or properties. This fact is evidenced by data showing UK recycling rates reaching up to 85% in the building sector and 90% in the transport sector, with almost 75% of the aluminium ever made still in use.

In a different vein, but currently in the news, the need to catch rogue elements dealing in stolen metals is, as ever, paramount. The police regularly mount operations to catch the thieves, but the industry needs to do more.

For an ever-increasing number of firms in recycling, the use of Smart-Water is now the most effective aid to detection.

Smart-Water is a chemically coded liquid that tags metals. Invisible to the naked eye but clearly visible under ultra-violet light, any metal once marked with the coded water can be traced back to its owner, and the thief or receiver can be linked to the crime scene.

Already in use by many recycling firms and organisations such as Thames Water and churches across the country, it is now finding its way into every aspect of the recycling industry.

One of the best deterrents on the market, it already contributes much to the good name and reputation of those who use it.

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