2017 ISRI Commodities Roundtable Forum: Copper’s fundamental disconnect

2017 ISRI Commodities Roundtable Forum: Copper’s fundamental disconnect

Panelists discuss the disconnect that exists between the copper scrap market and the futures market.

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September 11, 2017
DeAnne Toto
Conferences & Events International Recycling News Legislation & Regulations Nonferrous

Pictured above, from left: Bernhard Franz Uldrian of Montanwerke Brixlegg,
Dave Schilberg of Prime Materials Recovery and Joe Pickard of ISRI.

Randy Goodman, executive vice president at Greenland (America) Inc., Atlanta, moderated a discussion on the copper scrap market and its apparent disconnect with the copper futures market at the Copper Roundtable during the 2017 Institute of Scrap Recycling Industries (ISRI) Commodity Roundtable Forum in Chicago in early September. Panelists who shared their views during the session were Dave Schilberg of nonferrous scrap processor and broker Prime Materials Recovery, East Hartford, Connecticut; Bernhard Franz Uldrian of copper scrap consumer Montanwerke Brixlegg in Austria;  and Joe Pickard, chief economist for ISRI, Washington.

Pickard offered a brief presentation before the Q&A period began. He said copper was the best performer in terms of pricing year to date among nonferrous metals on the London Metal Exchange (LME), with its price increasing by 25 percent to reach nearly $7,000 per metric ton as of early September. He noted that the price, however, was “not really reflective of the fundamentals,” but instead illustrated the influence of automated trading on the futures market. Pickard added that 55 percent of trading in metals is carried out by computerized algorithms.

Goodman asked those in attendance whether they cared where the LME or COMEX copper price was currently or if they just wanted to move their material, with very few in the audience indicated that they were interested in that pricing. Goodman said that disinterest stemmed from the fact that it’s “not futures but the terminal markets that matter.”

He said there was a disconnect between what scrap dealers and consumers were seeing for scrap material and futures market activity. “People have questions,” he said. “They won’t get the answers here,” Goodman added, noting that too much uncertainty still surrounding China’s policy on certain nonferrous scrap imports that would be considered Category 7 materials.

Pickard noted that mainland China accounted for 70 percent of U.S. copper and copper alloy scrap exports in 2016.

Regarding refined copper prices, Uldrian said speculators were driving pricing.

Schilberg agreed, saying, “Hedge funds are driving refined copper prices.” He noted that a significant copper shortage was being projected through 2021, though he said he felt that figure was a bit aggressive. “At $3-plus per pound, producers may add additional supply.”

Pickard said that he used to think the market would return to fundamentals in the long term. However, he added, “I’m seeing less evidence that fundamentals do drive prices.”

Regarding a potential Chinese ban on copper-bearing scrap, Uldrian said he believed that material would be diverted to other countries for processing before entering China in upgraded form. He also said North America would have to look to the European Union market to find homes for this material. “New markets will not be like the new China but like the old Europe,” Uldrian said.

However, he added that order books for refiners in Europe are “flooded with raw material.” He said his company was looking out three months to book new scrap orders.

Goodman noted that U.S. refiners were filled up through November as well.

Schilberg said that if the Chinese ban proves to be permanent, it presents an opportunity for domestic processors to invest in new processing capabilities. However, he added that there would not be homes today for the increased supply.

With Hurricane Harvey having recently affected Houston and the surrounding areas and Hurricane Irma heading toward Florida as the event took place, the topic of scrap related to these natural disasters came up. Goodman predicted that they would have a small impact on overall copper scrap supply, though their effect would be greater in the affected areas.

Schilberg said he believed the storms would lead to a short-term increase in copper scrap supply, though he was less certain the effect on copper demand would be significant.  

The 2017 ISRI Commodities Roundtable Forum was Sept. 6-8 at the Marriott Chicago Downtown Magnificent Mile.