ISRI2019: Uncertainty clouds copper outlook
From left: Moderator Randy Goodman of Greenland (America) Inc., Tim Strelitz, Jurgen van Gorp and Jason Schenker

ISRI2019: Uncertainty clouds copper outlook

Speakers during the Spotlight on Copper see an uncertain future for copper scrap fueled by political and regulatory issues.

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April 15, 2019

Despite the uncertainty that hangs over copper scrap markets currently, speakers at the Spotlight on Copper during the Washington-based Institute of Scrap Recycling Industries (ISRI) 2019 convention, ISRI2019, April 8-11 in Los Angeles were not without optimism.

Tim Strelitz, owner and president of Los Angeles-based California Metal-X (CMX), a manufacturer of brass, bronze, engineered alloys and C87850 ingot-using scrap, said he was optimistic about the future health of the sector. He said he believed more copper scrap would be consumed in the U.S. spurred by China’s restrictions on imports of this material. He also pointed to the purchase of Global Brass and Copper Holdings Inc. by Wieland Group, Ulm, Germany, which was announced earlier this month, as a positive sign. Strelitz said he believed this purchase was a statement by Wieland that it thinks the future of the U.S. includes going back to primary manufacturing of infrastructure products.

“The Chinese are there for the Chinese” and will do whatever is best for them, Strelitz said, even if that means figuring out how to bring copper scrap back into the country. “China continues to be very much of an unknown commodity in respect to what they really want to do, what they really are going to do and how it all comes together.”

Jurgen van Gorp of Beerse, Belgium-based Metallo Group said he believed the formation of SDI La Farga Inc. in 2011 in New Haven, Indiana, was “courageous.” The secondary copper smelting company is a joint venture between steel producer Steel Dynamics Inc. (SDI), Fort Wayne, Indiana, and the Spanish company La Farga, a recycled-copper continuous-casting company.

Regarding the overall situation with copper scrap, he said he believed it stimulates creativity.

Van Gorp said the copper and brass packages that previously were shipped to China are now being offered to his company; however, he said they are not truly the packages they are labeled to be and require more extensive processing and upgrading prior to melting.

Strelitz agreed about the need for a greater degree of mechanical upgrading of scrap prior to melting, adding that CMX has become very “adroit” at this, which lends efficiencies to the company’s melting operation.  

He attributed CMX’s longevity in part to its adaptability. When he and his wife established CMX in 1979, 50 or so other smelters in the U.S. were making copper-based alloys for foundry use, Strelitz said. “Today, there are only four.”

He continued, “The ability to remain profitable in an industry that is collapsing around you is a function of being innovative and being able to constantly adjust to circumstance.”  

Strelitz also raised his concerns about the no-lead copper alloy products that are used in pipes for drinking water in the U.S. In some cases the lead has been replaced by bismuth, which Strelitz said is a contaminant in copper and represents a “dangerous scenario” for recyclers when it comes back to the secondary industry. This element cannot be refined out of the copper but has to be diluted over a much greater quantity of copper scrap. He advocated for attendees of the session to ask ISRI to lobby for the labeling of nonleaded copper components with either a BI for bismuth or an SI for silicon so they can be disassembled and sorted more easily and not charged into a furnace.

Regarding the addition of a new secondary copper smelter in the U.S., panelist Jason Schenker, president of Prestige Economics, Austin, Texas, agreed with Strelitz and van Gorp that it was a possibility, though they all added that it would be an uphill battle.

Van Gorp noted that it would take two-and-a-half to three years to fine-tune the furnace and that a lot could happen in that time. He pointed to the last two years and the changes that have caused international imbalances of scrap.

Given that, he said he believed investments that required a shorter return on investment (ROI) would be supported. He said this could take the form of shredding facilities for electric motors and meatballs on the scrap processing side of the industry.

Strelitz noted that part of the resistance to new secondary copper smelting capacity “is the tragedy that we call Chemetco,” referring to the 41-acre Superfund site in Madison County, Illinois, where the company operated a secondary copper smelting facility from 1970 to 2001 before it filed for bankruptcy. Contaminants of concern at the site include elevated levels of cadmium, copper, lead and zinc oxide, according to the U.S. Environmental Protection Agency. Site cleanup is ongoing.

Scrap processors with large operations that were dependent on China have been “investing furiously,” Strelitz said.

His own company recently acquired Colonial Metals Co., a secondary copper smelter in Pennsylvania that closed in mid-2018. CMX has partnered with another California-based company, scrap metals processor SA Recycling, on the deal. Strelitz said Colonial’s processes were “excellent” and, couple with CMX’s “innovative capabilities,” CMX has the chance to bring the plant back to full production. He added that melting and casting at the Colonial plant are expected to begin in roughly one month’s time.  

The biggest risk economically, as Schenker saw it, was related to conflict between the U.S. and China related to the changing power dynamic. “A lot of what we’ve seen on the policy side, I don’t think has anything to the do with the economics of global trade. I think it has everything to do with concern politically about a rising China, especially a China that has greatly outpaced us in terms of investments in robotics, artificial intelligence and quantum computing.”

He added that he believed there are “serious challenges ahead in terms of how the world gets carved up in terms of spheres of influences.”    

Schenker noted that the strength of the U.S. dollar has an inverse correlation to copper prices and that he did not see the dollar losing strength given that the European Central Bank is likely to raise interest rates this year. He also pointed to the “dumpster fire that is Brexit,” which has been lowering the value of the pound. A hard Brexit was unlikely to occur in Schenker’s view.

Van Gorp said that if the U.K. were to leave the European Union, it would affect the flow of scrap, creating delays related to customs issues and increasing costs. “Once people get used to that, scrap will find a balance.”

“The longer it takes to make a deal, the less likely it is a deal will be made,” Strelitz said.

Schenker said he anticipated more downside than upside risk over the next three to five years related to regulatory risks and supply chain disruptions as a result.

“As the world economy goes, so will the price of copper go,” Strelitz said, predicting more uncertainty going forward for the red metal.

ISRI2019 was April 8-11 at the Los Angeles Convention Center. Next year’s conference will be April 27-30 in Las Vegas.