A Unique Perspective on the Base Metals Market

Implications: Being an actual metal trader, selling scrap metal to mills and refiners, I believe I have a unique perspective on the base metals market. When selling scrap to a mill or refinery, the price is most often calculated using a mathematical formula.   Changes to the formula indicate changes in interest, i.e., demand.

Analysis: Being an actual metal trader, selling scrap metal to mills and refiners, I believe I have a unique perspective on the base metals market. I agree the fundamental issues raised by Mr. Buxton of GFMS Metals Consulting should have an effect.

However, most buyers, i.e. purchasing agents, are always interested in purchasing their needed product at a good price. Buyers for mills and refineries are no different.

When selling scrap to one of these customers, the price is most often calculated using a mathematical formula. For example, one our customers is buying #2 copper scrap at the market less 40 cents per pound. The current market of $3.00 for copper means they will pay $3.60 per pound.

My notes reveal the market last August showed the #2 copper scrap to be valued at the market less 65 cents per pound. So, although the market has declined roughly 60 cents, the #2 scrap copper has declined only 35 cents. For those of you that want an easy way to track these differences, the #2 copper scrap price is published in many sources including the “American Metal Market” and the “Wall Street Journal”.

There is more that goes into the creation of the formula, such as the net recoverable value, but the main thought I am going for is that there is much greater interest in purchasing scrap at these lower levels. To me, much greater interest is what spurs demand. Greater demand spurs higher prices. Now, if only the hedge funds let the market work, we should see higher prices in 2008.