Red metals: A well-fed sector

Red metals: A well-fed sector

Copper scrap supplies have been more abundant in most places thanks to higher scale pricing for red metals and ferrous scrap.

April 4, 2017
Brian Taylor
Nonferrous

Numerous variables affect the price of copper, and the degree of volatility in the price employs a seeming battalion of analysts and financial journalists who track copper price movements carefully.

 

Copper and brass scrap pricing and availability naturally tie into the price movements of copper itself, but in the past several decades a variable that has assumed increasing importance in red metal scrap supply involves its correlation with ferrous scrap pricing.

 

In the first quarter of 2017, this correlation played a significant role in the steady flow of copper and brass scrap into recycling facilities in Europe, North America and beyond, signaling a change in a sector that often had struggled with sourcing enough supply in the previous several years.

 

Scale house rock

At auto shredder yards and many of the retail scrap yards that feed them, the supply of obsolete scrap that flows in is dependent largely on the price for scrap iron and steel. Auto salvage yard owners and peddlers with appliances and mixed scrap loads often watch and wait for a bump up in ferrous prices before crossing a scrap yard scale.

 

Between November 2016 and March 2017, a (mostly) steady rise in the price of ferrous scrap has resulted in an increase not only in obsolete iron and steel collected and processed but also in the intake of aluminium and red metal scrap.

 

By March 2017, recyclers in Europe were reporting that red metal scrap supply had outstripped demand for many grades of copper and brass scrap. “Major copper foundries have full warehouses, with abundant availability of material on the market making it hard to settle on purchase and sales prices,” wrote Leopoldo Clemente of Italy-based LCD Trading S.R.L. in early March 2017 in the Bureau of International Recycling (BIR) World Mirror.

 

From her perspective in neighbouring France, Alexandra Weibel-Natan of Le Perreux-sur-Marne-based Manco wrote in the World Mirror, “Supply is available, but there is very little demand and very high discounts for scrap. The only demand appears to be for honey brass, which is sold mostly to the Netherlands and China.”

 

Hamburg, Germany based Aurubis, which operates one of the largest copper scrap-consuming refineries in Europe, issued a report on the state of the global copper market in the April 2017 edition of its Copper Mail newsletter.

 

The company writes that as of March 2017, “There was a very good international supply situation for scrap copper and blister copper.” Considering that copper scrap supply already was regarded as plentiful heading into the month, “There were no significant changes in the European copper scrap market in March,” says Aurubis, adding, “While copper prices did level off at times, this did not have palpable effects on the available volume. Smelters are well supplied.”

 

Ocean-going turbulence

The demand side for copper scrap seems to present a foggier picture as of March and April 2017. Also writing in the World Mirror, Shen Dong, director of international marketing for United States-based OmniSource Corp., says demand in China for red metal scrap continues to taper off.

 

“Despite copper trading index rallies over the last couple of months, the scrap market followed the opposite trend in January, with China Customs data indicating a fall in imports of 14% year on year and a drop of 22% from December 2016. Some traders believe weaker end user demand has contributed to this softness.” Some of that demand drop-off also may have been tied to the upcoming Lunar New Year holiday, which sees many industrial facilities idle their operations for two weeks.

 

India has been a steady and growing destination, but (as seems to happen intermittently) its government suddenly presented an unwelcome roadblock to the growing nonferrous scrap trade in late March 2017.

 

India’s Directorate General of Foreign Trade (DGFT) announced in late March 2017 that starting just a few days later on 1 April, the number of designated ports that will be able to handle scrap metal imports will be reduced from 26 to 14.

 

The “Public Notice 63” announcement stated the importation of scrap metal would take place only through the approved ports and there would be no exceptions, even within special economic zones.

 

The DGFT said the designated 14 ports will be allowed to handle unshredded metal scrap and have until 31 March 2018, to install and have operational radiation portal monitors and container scanners in place. After that time, any port that does not have the equipment will be prohibited from taking in unshredded metal scrap.

 

On 30 March 2017, the Metal Recycling Association of India (MRAI) sent an email to its members saying several of its officers were given a “patient hearing” by a DGFT minister who indicated he would act to consider the disposition or fate of containers that were already on their way to any of the 12 ports that had lost their approval in late March.

 

The long-distance horizon

Beyond the daily and weekly factors that contribute to red metals pricing, supply and demand volatility, several recyclers in North America were recently asked by Recycling Today what they considered to be the new “floor” price for copper. The question was asked in light of the global copper industry seeming to have caught up to the ongoing demand strains caused by the rise of China’s economy.

 

Jerry Miller, chairman of Wm. Miller Scrap Iron & Metal Co. in the U.S., sets a long-term copper exchange pricing floor at $1.25 per pound, though he does not envision it falling below $2 per pound any time soon. “China does influence demand, but others may pick up some [of that during] a downturn,” says Miller. “Also, the cost of mining and producing nonferrous metal affects where a price floor is, as do rising production costs.”

 

“I do not think copper will ever go below the $1.50 per pound level,” says Michael Eisner, the owner of U.S.-based Premier Metal Services LLC. “It appears the floor has been in the $1.80-to-$2 level, and as these levels were tested over the last couple of years there was resistance to go lower. I think this is due to the mining costs of copper ore.”

 

Lane Gaddy, CEO of Texas-based W. Silver Recycling, points to a similar floor level for copper, saying, “In the last few years we have tested lows around $1.90 [per pound], and I think that is a fair floor moving forward.” He adds, “I think we saw the bottom of copper pricing in 2009 that we will see in our lifetimes. We saw the credit crunch was the overall catalyst for seizing commodities lower than basic market forces would allow. Barring any similar overall mass credit catastrophe, we will not approach those levels again.”

 

Brian Shine, president of New York-based Manitoba Corp. and current vice chair of the Institute of Scrap Recycling Industries (ISRI), Washington, also is open to a greater level of global unpredictability when saying, “There is nothing to say that copper and steel [pricing] could not return to much lower levels not seen since the late 1990s. Having said that, it does not appear we will return to those levels, as [primary metals] producers appear to have much more market discipline and will reduce production levels if and when market conditions deteriorate.”

 

In its 2016-2017 forecast, the Lisbon, Portugal-based International Copper Study Group (ICSG) is not predicting any conditions that will test that potential floor pricing, although 2017 could entail an oversupply situation.

 

“ICSG projections for 2016 indicate the market should remain essentially balanced, while in 2017 ICSG forecasts a surplus of around 160,000 tonnes,” the group writes.

 

The ICSG sees mined copper production increasing in both 2016 and 2017, with demand increasing—but perhaps not enough to keep up with mined output. “ICSG expects world apparent refined usage in 2016 to increase by 1.5%,” writes the group. “This is mainly because apparent demand in China is expected to increase by around 1.5%, although underlying ‘real’ demand growth in China is estimated by others at around 4%. Usage in the rest of the world in 2016 is also expected to increase by 1.5%. For 2017, the growth in world apparent refined usage is expected at around 1%.”

 

The author is an editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net