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Even in an uncertain, slower-growth global economy, the world's demand for copper continues to strain the supply side.

Brian Taylor August 7, 2013

The world’s ability to consume copper has grown considerably in the past 15 years as China’s economy developed to the point where the nation now consumes some 40 percent of the world’s copper.

As copper prices fell in the first half of 2013 and economic data from Europe, North America and Asia often included disappointing results, the red metal’s pricing declined steadily, and concerns of a pending collapse in the copper market were sometimes expressed.

As of mid-summer 2013, copper is fighting to stay above $3.10 per pound on international exchanges, and the world is consuming copper at a slower pace in 2013 compared with 2012.

Data from the International Copper Study Group (ICSG), Lisbon, show copper consumption decreased 4 percent in the first four months of 2013, with the “hit the brakes on hyper-growth” approach by China’s central government resulting in a 7 percent decline in its consumption.

China’s leaders may be stepping back from their focus on slowing that nation’s economic growth rate, however. Europe’s and North America’s economies continue to struggle, but the construction sector in the U.S. is showing signs of life. Despite a less-than-stellar first half of 2013, the global demand for red metal appears to have stabilized thanks in part to its fundamentally important yet diverse applications.
 

Planning An Encore

A building wire producer has cast a vote of confidence in its industry in the form of a sizable purchase of land adjacent to its manufacturing complex.

Encore Wire Corp., McKinney, Texas, announced the purchase of 200 acres of land in late June 2013 in a move likely to lead to the company expanding its manufacturing and office campus. (A profile of Encore Wire can be found in the October 2007 Recycling Today article “Power Supply,” available at www.RecyclingToday.com/Article.aspx?article_id=20792.)

“Encore Wire has experienced steady growth throughout its history,” says Daniel L. Jones, company president and CEO. “In order to plan for our future and continue the long-term growth of the company, we have continued to increase our product offerings to our existing customer base in the building wire category. In 2006 we opened a new armored cable plant and in 2008 we opened a plant dedicated to the production of large tray cable. In 2010, we opened a new R&D Center and in 2012 we opened our new aluminum wire plant.”

Without disclosing details of how the additional land might be used, Jones says Encore Wire’s “strong balance sheet has historically enabled us to execute these projects at all points of business cycles. We believe that we will be poised to take even greater advantage of future upswings in business.”

Fixed and Mobile
In the United States, copper demand from the transportation sector has rebounded nicely since the economy’s low point in late 2008 and early 2009, while any such rebound in demand from the construction sector remains uneven at best.

Based on information gathered through mid-July, Americans may purchase nearly 16 million new passenger cars and light trucks in 2013, according to LMC Automotive, Troy, Mich.

“There is little question that the automotive market has strong momentum as we close out the first half of 2013,” says Jeff Schuster, senior vice president of forecasting at LMC. “Looking forward, all the key fundamentals are in alignment to continue the current growth trend, with production capacity limitations being the only major visible risk.”

A healthy domestic automotive market acts as a source of demand for new copper and also can help push auto salvage activity, providing much needed sources of red metal scrap for shredder operators and for dealers who serve auto salvage customers. Each new car contains copper in its electrical wiring system as well as in some bearings and radiators.

Although the sale of electric cars and hybrid vehicles may not match the loftiest expectations of boosters of this technology, sales figures for many of these copper-intensive models are rising. (See the sidebar “A Small Jolt” on page 108.)

Whether Americans purchase traditional internal combustion engine vehicles with an average of 50 pounds of copper or an alternative-energy vehicle that may contain from 100 to 150 pounds, busy automotive assembly lines help to underpin demand for copper.

While the health of the automotive sector is encouraging, the 462,500 tons of copper consumed in the transportation sector in the U.S. remains in third place behind the more important construction and electronic products sectors, according to the Copper Development Association (CDA), New York.

Economic data in 2013 has been pointing to some long-awaited improvement in the U.S. construction sector. Several economists say recovery in the residential and nonresidential construction sectors is necessary to cure several economic woes, most notably unemployment.

The copper and brass industries, likewise, will benefit if U.S. Census Bureau data pointing to rebounding construction activity prove to be consistent. According to Census Bureau data as interpreted by the Association of General Contractors (AGC), the biggest jump in construction spending has been in multifamily construction, which has climbed 52 percent year over year in the first five months of 2013. Single-family construction also has risen by an impressive 33 percent.

While an average automobile may have 50 pounds of copper and a hybrid vehicle more than 100 pounds, that is no match for the nearly 440 pounds of copper that goes into the average U.S. single-family home, according to the CDA.

Copper wire mills benefit from the 195 pounds of building wire, while copper tubing and brass mills benefit from the 175 pounds of plumbing pipes, valves and fittings. (These figures fall by about one-third for the average new multiunit residence.)

Census bureau figures for the month of June 2013 showed a pause in the residential construction growth momentum; but, even during June new housing starts and building permits were from 10 to 16 percent higher compared with June 2012.

An optimistic note in the building wire market came in late June from Encore Wire Corp., McKinney, Texas, which recently purchased 200 acres of land to expand its manufacturing and office campus. (See sidebar “Planning an Encore”.)

To any extent the construction sector is heating up in the U.S. it will benefit copper and brass producers who have been awaiting a recovery for several years.

A Small Jolt

When gasoline prices soared past $3 per gallon in the last decade, investment dollars and high expectations were poured into the design of electric and hybrid-powered passenger vehicles.

The expectations by some parties may have been a little too ambitious, but 2013 sales figures are showing that the American public is beginning to back the notion of spending less at the gas pump.

General Motors (GM) put much of its investment into the electric Chevy Volt. In June 2013, some 2,700 Volts were sold, bringing the year-to-date total to 9,855. That total may still not be what Chevy had in mind, but it is an 11.8 percent increase from the 8,817 Volts sold in the first six months of 2012.

Also rising are sales of “plug-in” hybrids designed by competing manufacturers. In a mid-July article, writer Christopher DeMorro of Gas2, www.gas2.com, reports that “Ford hybrid sales in 2013 are up 400 percent compared to the same period in 2012,” adding that the Ford Fusion Hybrid car and C-Max Hybrid and C-Max Energi plug-in hybrid trucks get much of the credit for the sales boost.

The Toyota Prius continues to outsell all other alternative fuel vehicles, with more than 120,000 Priuses sold in the first six months of 2013.

Sales of the all-electric Nissan Leaf are almost on par with Chevy Volt sales, checking in at 9,839 in the first half of 2013—a more than 200 percent increase from the 2012 sales level.

If Americans continue to purchase cars that they plug in at night, that will likely sit well with automotive copper wire producers and the rest of the red metals supply chain whose products are used in those vehicles.

Worldly Concerns
Beyond the borders of the United States, several questions cloud the future demand and supply scenarios that might underpin the copper market.

Foremost in the minds of many is whether China’s economy can continue to roll along at a growth rate that will keep the nation’s world-leading smelters and refineries producing copper in record amounts.

Before 2012 began, several investment and metals industry analysts predicted that China’s rate of copper consumption growth would slow, including a forecast from within China made by Beijing Antaike Information Development Co.

When 2012 was complete, however, statistics pointed to China remaining the main provider of global copper consumption growth. Data collected and published by the ICSG demonstrated 11 percent growth in apparent usage of copper in China in 2012.

China’s growth offset declining copper consumption in Europe, Japan and the United States. As well, China depended on imported refined copper for 17 percent of its needs as well as the usual abundant amounts of red metal scrap.

In 2013, China’s ability to continue to consume copper (and import red metal scrap) as it has in the recent past remains a foremost concern for copper miners, refiners and scrap dealers.

Data from China Customs show that in the first six months of 2013 the nation imported 7.2 percent less copper-bearing scrap by volume compared with the first half of 2012. China imported some 340,000 metric tons of copper in June 2013, down by 6.2 percent from June 2012. It imported slightly more than 2 million metric tons of copper scrap in the first half of 2013.

Lower scrap import levels, however, may be tied in part to restrained supply in Europe and North America, judging by China’s increased purchase of imported copper anode. In June 2013, semifabricated and unwrought copper import numbers also climbed.

Judging by London Metal Exchange (LME) and COMEX (Chicago Mercantile Exchange) pricing for the material, investors are still looking at China’s consumption patterns when considering the price of copper.

In mid-July, copper enjoyed two days of rising prices in part as a market reaction to a Chinese central bank announcement. The People’s Bank of China announced it would be removing the floor on lending rates offered by financial institutions and rural cooperatives.

The central bank’s announcement was seen as a nod by China’s central government that the nation’s housing, real estate development and construction industry needed a boost—the very thing that will lead to renewed copper consumption.

Whether a surge in Chinese construction or a rebound in U.S. construction will keep copper trading at above $3 per pound remains unclear, but both are signs that the copper market is not necessarily on life support.


The author is editor of Recycling Today and can be contacted at
btaylor@gie.net.

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