Curt Harler

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Market fluctuations

Scrap Metals Supplement

Asian copper and brass markets are in flux.

January 7, 2015

The Asian brass and copper markets are in flux. Regional economic and regulatory changes created a market environment that has yet to get comfortable with the new state of things.

The bottom line for North American recyclers, at least in the short term, is to look to domestic markets first. They will likely prove more profitable and reliable.

Demand for red metals—copper and brass—in Pakistan and India is sluggish at best and sad at worst. “Finished materials are not moving,” says Pratik Mehta, director of MSC Impex in Bangalore, India.

“Things are a lot better in the (United States) domestic market,” says Mehta. He finds that demand for all grades of scrap is slow both in India and Pakistan. “A lot of mills in the north of India have shut down,” Mehta says. They were no longer economically viable from a production point of view, he explains. With their production out of the picture, scrap movement languished.

The result, Mehta says, is a glut of supply right now. The impact is not just localized to the India-Pakistani market but is being felt throughout the region.

“Basically, we have seen a liquidity crunch in the local markets. It is making things more difficult for everyone,” he adds.

These producers did not move to half-shifts; they closed their doors. For that reason, Mehta says he does not expect a sudden uptick in demand. “Any increases will be gradual,” he says.

For much that reason, Mallin Cos., Kansas City, Missiouri, has drifted away from copper chopping over the years in favor of aluminum. “Most of our red metals stay domestic,” says Jeff Mallin, president of the firm. Although demand had fallen off as 2014 ended, Mallin credited that to the usual end-of-year, seasonal slump.

Quality has taken a hit, too. “We have seen increased processing of lower grades for red metals recovery in Pakistan,” says Manoj Sharda, general manager of purchasing at Global Metal Trading Co., Houston.

With uncertain government policies in Pakistan as well as sales tax issues, the demand for unprocessed material is not consistent. “For a few months, they are very aggressive, and for a few months they are out of market,” Sharda says. This has led to a major reduction in scrap prices, he adds.

While Pakistan is the biggest processor of lower grade material, it is mainly for re-export to copper-consuming countries like China, Korea and India.

“I believe market demand decides where the scrap is going,” says David Chiao, interim president of the Bureau of International Recycling (BIR) Nonferrous Division and vice president of Uni-All Group, based in Atlanta.

At the moment, few places—especially in Asia—are clamoring for copper. That also is reflected in U.S. markets.

“Copper is weak. It does not look good,” says Steve Shalit, vice president, Catalytic Converter Corp., Jamaica, New York. He is concerned because the company is just getting into the copper chopping business.

“It is a tough market. Things are not rosy,” he adds. “The No. 1 problem is that there is too much competition,” he says.

That considerable competition is felt around the globe. However, some observers in India see hope for improvement—especially if expected expansion in the electrical power transmission sector comes to pass.
 

Indian markets

In round figures, a ton of copper cable scrap was fetching from $6,200 to $6,300 on the Indian market (about 380,000 to 390,000 rupees) in November 2014. A ton of brass fetched just under $4,900 per ton (or 300,000 rupees).

The Center for Monitoring Indian Economy (CMIE), an independent economic study group based in Mumbai, in a report issued in the fall, says it expects refined copper production to increase by 10.1 percent into 2015. This is after production actually fell by 6 percent in 2013-14. Meanwhile, the Indian government moved to allow 100 percent foreign direct investment in its construction industry.

Recovery in cathode production by India-based Sesa Sterlite, one of the world’s largest diversified natural resources companies involved in exploring and processing minerals and oil and gas, coupled with increased supply of copper concentrates globally, is likely to lead to an increase in production, CMIE says. If basic copper production moves from its deficit status to a surplus, as CMIE says it believes, the market for recycled and refined copper could become weaker over the next 24 months.

Some 40 percent of the world’s finished copper products are made of recycled metal, according to Mujtaba Mir, director of Dubai, United Arab Emirates- (UAE-) based Mir Metals Trading LLC. The Gulf Cooperation Council (GCC) region is a major exporter of copper and brass scrap to other parts of the world.

About 16,000 tons per month of copper and brass scrap get generated in the eight-nation GCC region, according to Mir’s estimate, with very few destinations to melt that scrap within the GCC. Half of the generated total occurs in the UAE. The booming construction sector yields much of that scrap, with wire, cable, tubing and pipe being common sources.

In Indonesia, the country’s largest producer, Freeport McMoRan, had stopped copper exports earlier this year—not because of the price of the metal but because of a tax dispute with the Indonesian government. Freeport McMoRan resumed exports of copper in August 2014. The government of Indonesia had imposed an export tax on U.S.-based Newmont and Freeport McMoRan’s mining operations in January 2014. The miners then halted their exports, claiming that the hefty new tax violated their mining contracts. The stoppage ended after seven months when Freeport McMoRan resumed shipments.
 

Brass reversals

In other commodities, shipping direction seemed to change. Brass is one market where the volume of material seems to have reversed from having U.S. recyclers export more metal than they buy. From the global point of view, U.S. imports of brass mill products rose in August 2014 (the latest for which figures are public as of press time), while exports fell compared with the corresponding 2013 period, according to the Copper & Brass Fabricators Council Inc., Washington.

Imports from Germany in August 2014 totaled 11.2 million pounds, followed by South Korea at 6.37 million pounds, Mexico at 4.77 million pounds, China at 4.16 million pounds and Canada at 4.02 million pounds. Interestingly, several of those countries from which the U.S. imports brass mill products were leading destinations for they country’s exports. Mexico topped the list at nearly 8 million pounds, followed by Canada at 5.39 million pounds, South Korea at 1.5 million pounds, China at 779,234 pounds and Hong Kong at 777,479 pounds.

Although Shalit is familiar with the numbers, he still says he feels there is a total lack of volume in the market. Less material moving means tougher conditions. “It used to be everyone was cutting up a large pizza,” he says. “Now, it’s hardly a donut.”
 

The China card

Meanwhile, China is making great strides internally with generation and consumption of its own home scrap. That, coupled with China’s demand for better and more-consistent quality materials, is having an impact on the Asian and world markets.

Sharda says the dislocation is somewhat a result of China’s Operation Green Fence initiative. He contrasts China’s strict enforcement, current liquidity crunch and pollution with the fact that there are no declared quality- and import-related guidelines in Pakistan, no major currency depreciation and lower labor costs. All this has led to lower grades of red metals moving to Pakistan.

Chiao notes that China’s Operation Green Fence was merely an initiative to enforce the nation’s scrap import regulations.

“Lower grade, by definition, is lower in recyclable content,” he adds. “The import duty/VAT structure and shortages of labor are the real reasons the lower grades of scrap are not going to China. However, the market is still there,” he says.

“The lower grades are processed in Pakistan for recovery of red metal. Earlier, these grades were also exported to China,” Sharda points out.

Mallin says he sees uncertainty from the Chinese government and issues in their internal banking situation. Both factors have caused a short-term dislocation in the market.

“Everyone chases pennies in this market,” Mallin says. “If they are in, people will go with them.” When the Asian markets fade, red metals exporters face a situation such as what we have right now.

It is that very reason that caused Mallin to gradually shift the company’s focus from 80 percent copper and 20 percent aluminum 10 years ago to 80 percent aluminum and 20 percent copper today.

In economic times like the current market, the strategy has proved a winner.

“The economy is slowing down in China,” Chiao agrees. Although reported gross domestic product growth will hit 7 percent, most of the growth is in the service sector, not in manufacturing. So, he says, metals are still weaker in demand. On top of that, Beijing also is holding commercial lending very tightly.

Mehta says local markets in the United States are stronger and North American recyclers can do themselves a favor by looking to find outlets for copper scrap domestically. “At the moment, they are better to keep things at home,” he says.

Although there often are seasonal dislocations in the brass and copper markets because of winter weather, at least material continues to flow through recycling yards. Copper continues to sell within a dime above or below the $3 mark as of the end of 2014. That is down from the $3.20 range that copper sold in during August but certainly not devastating.

Yellow brass was hovering in the $2.05 range on North American markets. Throughout 2014, honey brass prices were about as flat as the proverbial pancake, varying less than a nickel on a month-by-month basis.
 

Market outlook

Observers like Mehta say they feel there is hope as we move into 2015. “Maybe at the beginning of January or the middle of January things should be more positive,” he says.

China’s focus has moved beyond dealing with recyclables such as copper and brass. “Beijing is mainly focused in crashing corruption,” Chiao says. “Every week we hear some number of public servants jailed,” he continues. In November in Huangpu—which controls Nanhai ports, among the most important ports that import scrap material—some 30 customs officials were investigated and jailed for corruption, he points out.

Chiao says he believes the impact on the scrap business will be two-fold. First, he predicts a systemwide cleanup and more restricted control of inbound shipment. “No hanky-panky stuff,” he says.

Second, Chiao says he expects a slower process in import declaration because officers would rather “do nothing” to avoid investigation.

Pakistan will continue to buy low-grade material. Sharda says, “We have not seen noticeable big volumes of high-priced copper alloys moving toward Pakistan due to the risks involved and the political situation in Pakistan.”

That said, Sharda says he believes domestic demand, even for low-grade copper in Pakistan, is very minimal.

CMIE is optimistic about Indian consumption, mainly because of an anticipated surge in demand for copper from the power transmission sector. The group says it expects to see an additional 31,541 megawatts of capacity added by the end of 2015. Demand from other industries—consumer goods, electronic goods and industrial machinery—also is expected to be strong.

“India’s auto and power industries should be major consumers for red metals,” Sharda says.

As such, the demand for copper in India is expected to remain healthy in 2015. However, increased supply of copper globally is likely to lead to a fall in international copper prices, both at the mine and in recycling yards.

“For 2015, we anticipate good demand coming out of India for red metals,” Sharda says. He says this demand cannot be met by current resources at India’s disposal. The demand will definitely be shared by China, he adds.

 


The author is a contributing writer to Recycling Today who is based in Cleveland. He can be contacted at curt@curtharler.com.

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