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Weathering the storm

Features - Commodity Focus

The winter weather has had an effect on regional markets for copper scrap.

Curt Harler April 3, 2014

A topsy-turvy winter has had an effect on regional markets for red metal scrap. Meanwhile, the overall price of copper scrap continues to slip and slide. It is a goofy time; when there is more concern about snow and ice in Atlanta and Birmingham, Ala., than in Albany and Buffalo, N.Y., something is awry.

The traditional winter slowdown in nonferrous scrap markets was anticipated and built into many schedules. The gradual price decline that started in 2013 comes after several record-setting years of high prices.
 

Weather challenges

“Materials continue to flow despite weather disruptions,” says Brady Bird, president of S.I.C. Recycling, Riverton, Ill., of the supply situation in early February. “Supplies are starting to tighten up,” he acknowledges, “but that is customary for this time of year. Given what is going on, supply is decent for this time of year,” he adds.

The challenge his operation faces is mostly in the area of timing. “For the most part, there’s been some juggling to be done,” Bird says. However, customers are quite aware of the news and weather forecasts and tend to go with the flow, such as it is, he says.

Location seems to make a difference. Just a day after the February blizzard whipped across Alabama, Emmet Ross, the accountant at Jordan Scrap in Birmingham, was able to report that the company was open for business.

“Not bad,” he says of Jordan Scrap’s outbound shipments. “Our mills are very close to us,” he explains. On the other hand, nothing had come into the company’s yards yet as haulers waited for ice to melt and roads littered with abandoned cars to clear. In-bound deliveries were expected, but schedules remained erratic, Ross adds.

“That depends on outside trucks and contract drivers,” he says of transportation schedules.

“Things are tight right now,” says Todd Safran, vice president and chief operating officer of Safran Metals, Chicago. (See “Close ties” in the February 2014 issue of Recycling Today for a profile of the company). “Nothing is coming in or going out.”

The reason for the stagnation is tied to the weather. “Trucking is behind the eight-ball,” Safran says. “It is tough to move stuff right now.”

Simply put, everyone in the industry has a schedule. When the weather tosses in its wild card, the game changes. “Everyone has needs for tomorrow, and everyone has needs from yesterday,” Safran says.

Buyers at Rivers Edge Scrap Management, Kansas City, Mo., say they are able to ship nonferrous material the company has processed. Getting metal into the yard is a different story, however. Material flow has been on the slow side, they say.

When it comes to the weather, “I don’t see the problem … it’s 80 degrees and sunny here,” laughs Michael Diehl, director of copper for Alpert & Alpert, Los Angeles. “From a Los Angeles point of view, snow is a very foreign concept.”

However, he is quick to point out that, even on the West Coast, the weather-related challenges of the Southeast and Eastern Seaboard have reverberated into his market.

On top of that, similar cold weather blues in Asia certainly have an impact on the material the company ships overseas.

“Shipments are two to three weeks behind a normal schedule,” Diehl says as of mid-February. With its effect on container flow, the weather forecasts 2,000 miles away become a big problem in Southern California.

Many scrap dealers say they find it difficult to move material in any direction as February comes to a close. All sorts of people in cities such as Atlanta just gave up on the idea of moving freight or even going home for the night and hunkered down in motels. Market prices, however, continued to tick along.
 

Market booster

Bare bright 12-stranded copper wire was selling for about 25 cents per foot in some locations. A more typical quote had No. 1 bare bright wire at $3.30 per pound and insulated wire at $2.65 at the start of the year. No. 1 copper wire and tubing was quoted at $3.17 per pound, though regional variations were present. In Florida, No. 1 bare bright wire was fetching nearly $2.75 per pound at the scale in mid-February. That is still a long way from the $3.70 per pound that the material fetched this time last year.

One way to increase the value of scrap, jobbers are discovering, is to bring it in without the insulation.

“Copper wire is worth at least 30 percent more when it’s stripped,” says Scott Cole, DeLand, Fla. He is the inventor of a device that makes it easy for individuals to capitalize on repurposing used or discarded wire. It is not a tool a recycling operation would use, but it is one that a recycler could mention to regular jobbers, electricians, contractors, construction workers or repairmen who supply wire on an ad hoc basis.

Cole’s tool is called the Zoda Tools Wire Stripper (http://zodatools.com). It is a small, portable device that strips insulation from valuable copper wire. Not a budget-buster, it sells for $58.50. With some experience, a jobber can strip 100 feet of 10-gauge wire in less than six minutes, Cole says. The resulting 3.2 pounds of copper will bring a better per-pound price at most scrap yards. And processors are eager for material.

“We certainly are buying,” Safran says. Finding stuff to buy is another question.

“The slowdown has trickled down to everyone,” Safran continues. “Everyone is feeling a bit of the squeeze—everyone from freight to foundry to metals buyers to the small guys.”

State governors were not closing down Interstate highways in the Great Lakes area the way they were in the deep South in late January and again in mid-February.

“Snow doesn’t cripple us at all,” Bird says. “We continue to fulfill our contracts.”

Typically there will be a lag from the time the weather breaks to the time scrap shipments get back in full gear. Material is delayed getting from shipper to dealer, and it takes a while for the pipelines to refill and a new normal to return.
 

A new year

As expected, the Chinese New Year—the Year of the Horse—did not get off to a galloping start. Markets traditionally fade when the Chinese New Year comes around. That was true in 2014. However, with the Lunar New Year celebration in the rearview mirror, markets seemed to forget that they were due to pick up a bit.

“International is definitely slower than in years past,” Diehl says. Looking back five or six years, he says Chinese New Year was a minor event or nonevent. This year, buyers were talking about time off for the Lantern Festival a week after they should have been placing orders after the Lunar New Year.

“The tone of the market has changed,” Diehl says. “It goes back to December.” He adds that sales to China during the period from December through January and into February were almost nonexistent.

“Demand for this year will be lower,” Diehl predicts. He says he sees blister copper, a porous brittle form of copper that is 98 to 99.5 percent pure, coming on in serious amounts as a substitute for copper scrap in China. This presumably will have a negative effect on scrap prices.

Overseas markets are always a bit of a question mark and sometimes an enigma for domestic scrap handlers. “I’m never sure what will happen,” Safran admits. “That market comes and it goes.”

Although S.I.C. does no export business, the company is aware of the market echoes caused by changes in the international marketplace for copper, brass and other nonferrous materials. Although Bird says he sees some continued macrolevel instability in the international market, he adds, “There still is enough domestic demand that ate up any absence of turnings in the market.”
 

Spring ahead?

Bird says domestic demand is good. “The automotive markets have stabilized and continue to improve,” he says.

Will markets spring ahead as the weather warms up?

“I’m hoping things will pick up as we get to the warmer months,” Safran says, “but nobody is too aggressive on ordering. Nobody is putting extra inventory on their shelves.”

That can be a good sign, too, he says. Come spring there may be pent-up demand that could fuel the market and help all nonferrous scrap metal markets.

“We are seeing stabilization coming off a couple of down years,” Bird says. “The U.S. economy is picking up and has some momentum.” Bird points to the positive news in manufacturing and the start of a housing rebound. Automotive continues to do well too, he adds. “We should be all right as long as there are no surprises,” Bird says.

Diehl is not as optimistic about international markets. “The price of scrap is much too high,” he says, even given that prices have dipped 70 cents or more from 2013 levels. “2013 was very high,” he says, noting that high prices make substitutes like blister copper more attractive to buyers.

He says Birch Cliff copper (also known as No. 2) has got a tough row to hoe against substitutes.

On top of that, Diehl says copper has gone from a go-go commodity to a rather staid item in terms of the speculator or investor market. The bull market started in 2008, and copper hit some amazing highs in 2010. “Now the cash flow is coming out of the market. Last year was in a down trend. This year we’ll see more of the same until we hit a base.”

Safran says he expects to see spreads tighten a bit as we go into spring as volumes increase. More so in the Midwest, but almost everywhere in North America this year, spring should be a time for renewed work in the construction and infrastructure areas.

That may hold true for some markets. Diehl says he expects more market volatility, adding that spreads have the potential to get wider. “We have the potential to go much lower … down to $2.80 or $2.90,” he says.

Diehl dismisses dealers who are still talking about $4 copper any time soon. “They need to be a bit more realistic,” he says. “It’s a new era. It’s a trickier market out there. You have to adapt and be quicker to do things.

“This market will be more challenging,” Diehl predicts. “It’s no fun when you are sitting in the middle of it, but we’re coming off six good years.”

 


The author is a Cleveland-based contributing editor to Recycling Today. He can be reached at curt@curtharler.com.

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