Impressions of the late May BIR meeting in Copenhagen and thoughts on the market

European Scrap Market Challenges

At the BIR conference last week, our discussions revealed that the European scrap community faces similar issues to the U.S. in that, despite recent price increases, there is limited scrap availability. European manufacturing remains weak, constricting supply; available units are either used domestically or exported. Additionally, U.S. scrap units are flowing into Europe, indicating tight market conditions.

A major concern for the European scrap community is the increasing regulatory landscape. By 2026, European scrap importers and exporters must monitor and verify carbon emissions for transactions to comply with the Carbon Border Adjustment Mechanism. Non-compliance could result in taxes and fines, potentially reducing scrap exports from Europe.

LME’s Decision on Class 2 Contract

The LME representative at the conference explained that the exchange decided against designing a Class 2 contract due to the fragmented nature of its components, such as ferronickel and nickel sulfate. However, the LME reported a significant recovery in trading volume and open interest for the Class I nickel contract.

US Macroeconomic Data and Market Conditions

Recent U.S. macroeconomic data shows mixed results. The personal consumption expenditure index for April met expectations, but core-PCE showed a slight decline, leading to cautious optimism in the Treasury markets. Personal income and spending also rose slightly below expectations and this past week, we learned that the May ISM manufacturing readings also disappointed.

Metals are also down on account of fund liquidation. Many fund positions maintained their length for much of last week despite falling prices, but as valuations continue to weaken, some of the more entrenched length could show increasing signs of nervousness.

Oil prices have also declined following OPEC’s decision to extend production cuts until 2025 as the markets are not sure whether the cuts are going to be enough given the current growth profile. Precious metals are selling off, and US equities have had a rough couple of days as well, all contributing to the negative sentiment. Indian equity markets have been particularly under pressure given that Prime Minister Modi’s majority in the new parliament will not be as large as expected.

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