Positive prognosis

Features - Metals

Thanks to a number of new and existing markets, the long-term outlook for red metals looks good.

August 11, 2015
Curt Harler

The red metals industry has had a complete physical. The bottom line: Copper and brass markets are going to survive. However, some lifestyle changes might prove healthy for their long-term health.

From the recycling industry’s point of view, copper was in great shape until the past year or so. Even though most copper foundries actively seek recycled material—recycled copper is less expensive than virgin materials—the market has been unsteady of late. That reflects basic demand for copper products.

While copper use took a hit with the downturn in the construction sector seven or eight years ago, James H. Michel, manager of technical services for the Copper Development Association, New York, says he sees a rebound in demand for red metals used in construction and from some other sectors, such as health care.

His view of the industry, necessarily, is long term. The market continues its short-term swings.

Regarding mill and foundry products, a Great Lakes-based consumer of red metal scrap says, “Demand has been spotty for the better part of a year.” He adds, “There is no consistency.”

As a result, domestic and international foundries have cut their raw materials inventories to the bone. Many consumers of mill and foundry products seem to be ordering only what is absolutely essential, and that leaves manufacturers of alloys in the dicey position of having to second-guess market demand for the several alloys they offer.

Although inquiries and orders reportedly perked up in the second quarter of 2015, the market for mill and foundry products still seems to lack consistency.

Now trending

Just as dress hemlines rise and fall, so too do styles in building architecture and home decor. The aesthetic pendulum has swung back from light and white to using color in architecture, Michel says. In home design, brass, bronze and copper use is rebounding in door hardware, countertops, backsplashes, appliances and fixtures.

Michel remarks, “People want a warmer pallet.”

Copper roofing also is rebounding because of its longevity.

With the economic slump of 2008, the gross number of buildings constructed dropped—and with it went the demand for basics like plumbing pipe. Fancy architectural uses of copper, brass and bronze for library doors, bay window roofs and building trim got slashed. Now, however, copper use is rebounding in the architecture sector as copper alloys are being incorporated into high-rise buildings, embossed doors and panels and similar areas where the durability, color and heft of copper add dimension to a design.

“We are seeing a number of projects in the United States and globally that are using copper materials,” Michel says.

Go-to applications

Infrastructure projects are generating buzz politically, and demand for copper products may see a boom as a result.

Copper remains the material of choice for water delivery systems in commercial buildings and multitenant units, which are built with a life expectancy of 75 to 100 years. Building owners expect their support systems to last equally as long.

The outlook is a bit different in home construction, where copper continues to lose ground to PEX (cross-linked polyethylene) systems for plumbing.

PEX is a kind of plastic tubing used in plumbing and heating applications, primarily on residential projects. It is easy to bend and curve and resists the scale buildup common in copper pipe. PEX does not pit or corrode, and it claims to be freeze-resistant and less prone to the annoying “water hammer” effect seen in copper piping. Additionally, PEX tubing is cheaper than copper pipe. Labor costs also are lower because most PEX installations require fewer fittings. Its use in the residential market has made a dent in copper’s market share.

“Commercial still prefers copper for water delivery,” Michel says.

Copper also remains the go-to material for electrical applications. “There is no viable alternative in the electrical industry to take the place of copper,” Michel says.

Aluminum wire does have a place in long lines owing to its lighter weight, he concedes, but the housing and automotive markets continue to demand copper wire.

Antibacterial properties

Another area where copper is quite healthy, both in terms of growing market share and where human wellness is concerned, is in antimicrobial uses.

“Copper surfaces kill bacteria,” Michel remarks.

The U.S. Environmental Protection Agency has verified that copper and copper alloys kill at least a half-dozen kinds of bacteria that cause illnesses in hospitals.

The most commercially available product is the C706 alloy, a mixture of 90 percent copper and 10 percent nickel. Its uses range from door handles to sinks to bed rails to IV stands—just about anywhere a human hand might come in contact with a surface and either pick up or impart bacteria that could make patients sick.

“Use of the copper-nickel alloy on those surfaces decreases the bioload,” Michel says. “The surfaces self-sanitize.”

Even if the surface tarnishes, the material retains its antibacterial quality.

Beyond hospitals, sinks made from the copper-nickel alloy could find a place in public buildings, airports, hotels and even in the home.

The resurgence in traditional uses for red metals and the prospect for new growth areas bode well for copper consumption and the continued need for recycled copper and brass.

Economic outlook

The International Copper Study Group (ISCG), Lisbon, Portugal, forecasts world refined copper production exceeding demand by 365,000 metric tons. Looking to 2016, ISCG says it expects the copper market to show a second consecutive year of production surplus.

The good news for 2016 is that the surplus will be about 230,000 metric tons in 2016 as opposed to 365,000 this year.

ISCG forecasts world refined copper production in 2015 increasing by about 4 percent year on year to 23.4 million metric tons because of expansions at electrolytic plants in China and higher capacity in Africa. This follows a 7 percent increase in refined copper production in 2014.

World mine production in 2014 was up just 2.4 percent. However, mine production should be up 5 percent this year and another 5 percent in 2016, ISCG says. That will put production at 19.5 million metric tons in 2015 and at 20.5 million metric tons next year. The anticipated increases will come from mines that have recently come online.

Of course, supply needs demand. Usage saw a healthy 7 percent increase in 2014. For 2015, ICSG says it expects growth to be in the 0.5 percent range.

In the meantime, copper scrap prices are rotating through a cycle, starting low, running up a bit, falling back and repeating. At one point, copper was nudging $3 per pound. Then it fell back to the $2.60 range. None of that is enough to have a major effect on scrap demand, however.

Keep in mind that, generally, commodities move in the opposite direction of the U.S. dollar. There are two reasons for this opposing action. First, most of the broadly traded commodities are priced in U.S. dollars. When the dollar’s value goes up, it takes fewer dollars to buy commodities, so that pushes down prices. On top of that, the stronger dollar makes commodities more expensive for overseas buyers whose currency is weaker by comparison.

Recently, the U.S. dollar has been strong against many other major currencies, including the euro, yen and British pound, with the expected result in prices for metals and other commodities. However, the U.S. dollar softened somewhat as of early July.

Adjusting for China

By far, China remains the world’s largest consumer of copper for traditional and innovative applications. According to ICSG figures, China accounts for 40 percent of global demand.

Copper, usually an exciting metal, has not seen the kind of market that blessed it for the first decade or so of the 21st century, fueled largely by demand from Chinese producers.

ICSG says it expects industrial demand growth in China to be in the 4.5 to 5 percent range this year. However, apparent demand is expected to increase by 1 percent, with the rest of the world remaining flat.

For 2016, the growth in apparent refined copper usage is expected to be in the 3 percent range, with underlying Chinese industrial demand growth expected to be in the vicinity of 5 percent. Usage in the rest of the world will be up about 2 percent, according to the ICSG.

It is difficult to find out just what China is pumping out or consuming. ICSG points to anecdotal evidence that substantial fluctuations in Chinese bonded stock levels have occurred. Apparent demand based on trade, production and changes in exchange inventories may not adequately reflect industrial use, it says.

In fact, the situation is so cloudy that ICSG last year added a new line item to its data figures: world balance adjusted for Chinese bonded stock changes. While no official data is available for Chinese bonded stocks, ICSG averages estimates from three consultants to determine the unreported inventory changes.

Near-term outlook

Copper, one observer says, is in for a “quiet, moody summer.”

Some observers say they fear other materials, such as aluminum and plastics, will supplant copper in some applications. That is typically more of a concern when copper prices are at the top of their cycle, however.

Red metals industry observers point to the number of new uses being developed for copper as encouraging.

In addition, copper maintains a healthy place in the market as a high-conductivity, corrosion-resistant, durable and strong metal.

These factors combined bode well for the copper market longer-term, they say.

If you are a worrywart, more worthy of head-scratching consideration is how much good quality copper remains to be mined. The supply of high-quality ore is finite. That factor will drive substantial demand for recycled copper and brass in the future and indicates a strong and healthy red metals market for recyclers into the intermediate future.

Cleveland-based Curt Harler is a contributing editor to Recycling Today and can be contacted at curt@curtharler.com.