ISRI2017: What’s in the cards for copper?

ISRI2017: What’s in the cards for copper?

Speakers at ISRI2017 examine the factors influencing copper markets.

May 1, 2017
DeAnne Toto
Conferences & Events Nonferrous

Pictured above: Edward Meir of INTL FCStone speaking during the Spotlight on Copper session at ISRI2017.

Representatives of a copper mining company, a scrap metal processing company and a financial services firm shared their views on copper in the near to long term during the Spotlight on Copper session at the Institute of Scrap Recycling Industries 2017 Convention & Exposition (ISRI2017), which took place in New Orleans April 22-27.

Randy Goodman, executive vice president of Greenland (America) Inc., Roswell, Georgia, moderated the session, which looked at U.S. mined copper production, the role of computers in high-frequency trading, China’s influence on copper demand and the possibility of trade actions by the administration of U.S. President Donald J. Trump.

Tom Metos, manager of Kennecott Utah Copper LLC, a Rio Tinto subsidiary based in South Jordan, Utah, said the copper mining industry is arriving at a supply deficit. Metos said exchange inventories were below 600,000 metric tons as of late April. He called for investment now to meet demand in the midterm.  

Of the 10 largest copper producers based on 2016 volumes as reported by Bloomberg, Rio Tinto ranked No. 6, having produced 600,000 metric tons last year. Freeport-McMoRan ranked No. 1, producing more than 1.8 million metric tons in 2016, while COLDELCO ranked No. 2, producing 1.8 million metric tons for the year. In the No. 3 spot was Glencore Xstrata at 1.2 million metric tons of copper production.

Metos said U.S. mined copper production “likely will be flat for a long time.”

He added that the U.S. imported 700,000 metric tons of refined copper in 2016, the majority of which came from Chile and Peru. The U.S. exported 50,000 metric tons of refined copper to China last year, while South America exported 1.46 million metric tons to the Southeast Asian country.

China, Chile, Japan and the U.S. are the largest producers of refined copper, Metos added.

China, the European Union and the U.S. are the largest cathode importers, with China importing more than three times that of the U.S. and the EU, he said. China’s imports of copper cathode have held relatively steady from 2014 through 2016 at just more than 3 million metric tons, while the EU has been in the 1-million-metric-ton range and the U.S. in the half-a-million-metric-ton range.

Metos predicted demand for copper increasing in the U.S. as 6 million to 10 million lead water service lines are replaced by copper lines. He said the change would result in 1.43 billion pounds of lead entering the scrap stream and 300,000 tons of copper potentially needed to replace these lines.   

Matt Levine of Leonard Levine Metals Corp., Highland Park, Illinois, was a pit trader on the Chicago Mercantile Exchange back in the 1980s. He said pit traders relied on instinct, charts and other technical information to make their trades. Today, he said, computers trade on “technicals and algorithms.” They are not so much trading copper as trading number, Levine added.

He said the trading pits of the past have been replaced by data centers, which he described as having “the same energy and activity without the smell.”

Levine added, “The cure for high-frequency trading is high frequency trading.”

Given the prevalence of high-frequency trading, Levine’s advice to scrap dealers was not to speculate on their copper scrap. “Have a plan in place to buy and sell your copper.”

Edward Meir, a commodity research analyst with INTL FCStone, New York, said the influence of exchange-traded funds on copper prices has increased over the years. “In the early 1990s, most of the business was concentrated in the hands of commercial accounts—producers, consumers, scrap yards—people who really needed to hedge in the traditional point of view.” He said that share has decreased over time, while fund activity has had a “massive increase.”

Meir said when commercial activity was in its heyday, prices for copper moved in accordance with stocks. “As stocks went up, copper prices … would fall.” He added that it was a “very clean correlation.”

Today, however, he said there is almost a 90 percent correlation between the actions of funds and what copper prices are doing. “They all got out in ’07-’08, and copper prices collapsed. They all got back in in ’08, ’09, ’10, ’11, and they have been sort of getting out since then. Recently, they have come back in, and we have ticked higher [in terms of pricing].”

Even so, Meir said, “Fundamentals still count. Supply and demand eventually prevail.”

He said he believes pricing will be between $2.45 and $2.70 per pound between now and October. “Around October is when we get the next wave of labor negotiations,” he said, referring to copper mining companies. “If we get strikes again or walkouts … 1.5 million [metric] tons of copper could be in jeopardy.” If strikes occur, he said, prices could get to $2.85 per pound by the end of the year. If the strikes do not occur, Meir said he expected prices to range from $2.36 to $2.56.

Regarding demand, Meir said he was concerned with what is happening in China. He predicted that real estate will be less of a driver for copper consumption in the second half of the year. “Real estate has been the main driver behind base metals prices, much more so than infrastructure spending,” he said. “I am a little bit cautious about China going into the second half of the year.”

He added that other longer-term trends in China “don’t look so great to me.” Meir forecasted that per capita metal consumption in China would decrease as the country became more urbanized and transitioned to a service economy.  

Refined imports of copper to China also have been flat over the last three years, he said, at 3.6 million metric tons. Copper demand ran at 10 to 15 percent annualized in 2008-2009; now it is at 3 to 4 percent. “That is a big difference, considering that their demand is 12 million [metric] tons per year—it is more than half the world’s consumption.”

Scrap imports to china have “collapsed” Meir said. “In 2012, the Chinese imported almost 5 million [metric] tons of scrap. Last year they imported 3.3 million, and it has been steadily declining over the years.”

He added that China is generating more scrap internally, which could be a factor in declining scrap imports. The country also is producing more refined metal because it is purchasing more concentrates.

Meir said wild cards that could throw things off included trade actions from President Trump. “The president can unilaterally move on trade actions … so that is something to watch, especially with the Chinese.”  

ISRI2017 was April 22-27 in New Orleans at the Ernest N. Morial Convention Center.