Copper spreads to tighten?

Processors and traders of nonferrous scrap are predicting a strong year ahead, which is not to say they are without their concerns.

Scott Tauben, vice president of Metalsco, a nonferrous scrap trading company based in St. Louis, says demand for copper is strong and growing, in part because of the projected growth in electric vehicle (EV) manufacturing. However, he fears pricing could reach the $6 level within the next year or two, which he says would not be good as it could lead to increased theft and security problems for homeowners, scrap dealers and construction sites.

A number of investment banks foresee the red metal reaching or exceeding that level by the middle of the decade. For example, as of October, analysts at Goldman Sachs were predicting that copper prices could average $11,875 per metric ton, or $5.40 per pound, in 2022; $12,000 per metric ton, or $5.45 per pound, in 2023; $14,000 per metric ton, or $6.36 per pound, in 2024; and $15,000 per metric ton, or more than $6.80 per pound, in 2025.

The Goldman Sachs analysts forecasted that the London Metal Exchange copper price would reach $10,500 per metric ton by the end of 2021, adding: “At the heart of our renewed bullish copper call—coming in spite of very real risks to the Chinese property sector and global growth—is the fact that the physical market is becoming increasingly tight, with minimal near-term risks to the balance in our view.”

While scrap generation still has not returned to prepandemic levels, Tauben says it has been slowly trending upward this year, though winter weather has the potential to interfere with scrap flows.

“We have had good flow through mid-November, but we have seen volumes slow a little in the last few weeks,” says Mitchell Goldberg, CEO of Northeast Metal Traders, a nonferrous scrap processor and broker headquartered in Philadelphia. “I believe there are two reasons for this slow-up. First, the slight drop from $4.50 to the current market is a factor, and, secondly, the suppliers are holding inventory to manage their tax liability for year-end.”

Both Tauben and Goldberg say domestic and export demand have been strong for red metal scrap.

“All our consumers report full order books,” Goldberg says, with many domestic consumers purchasing material midmonth for December delivery and booking additional 2022 business, anticipating strong demand.

Tauben says he’s also hearing that the consumers his company supplies are busy, noting this is likely why spreads are tightening as of mid-December. He adds that they might loosen come January.

Goldberg, who says spreads are tighter than they have been in some time, however, predicts they will remain stable or tighten based on the availability of cathode, scrap substitutes and the terminal market prices.

He mentions “phenomenal” demand from Asia and Europe. “All grades of copper and many grades of brass are easily sellable. Quoted discounts have squeezed tighter, but export shipments are also governed by container and vessel availability, and tighter spreads have less meaning if you can’t get the product on a ship.”

Goldberg adds that while not all scrap processors can meet China’s import specification, those that can are able to sell at better spreads. “That said, the demand for traditional grades is also strong, and those spreads have tightened as well.”

Tauben also points to strong demand from European consumers as well as from those in Russia, Ukraine and Turkey. “There is strong demand abroad for everything.”

In addition to the difficulties associated with ocean shipping, trucking remains challenging. Tauben says, “Anyone who has contracted an 18-wheeler in the last year has been paying—if they’re lucky—twice as much. It’s more like three to four times.”

Goldberg adds, “Trucking difficulties are rampant based on equipment availability and quality carriers that have the necessary cargo insurance to haul scrap loads at $200,000 per.”

Despite these issues, he says nonferrous scrap availability on the I-95 corridor remains strong. “Competition for the scrap in our area is even more robust. Overall, 2022 appears to have the makings of a strong year for scrap.”