Bright outlook

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Despite China’s import restrictions, the outlook for copper scrap demand in 2019 remains bright.

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January 28, 2019

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This year might prove to be a good year for copper scrap processors and traders as demand is expected to outpace supply. Supply restrictions already are being seen in some regions of the United States, while others have excess supply.

“1Q and 2Q of 2019 [are] seeing a larger supply of copper scrap when compared with demand, but scrap is still moving,” says Michael Diehl, director of copper for Alpert & Alpert Iron & Metal Inc., a nonferrous scrap processor and trader based in Los Angeles. “Prices to the supplier are affected to the lower side (compared with the last 12 months), but dealers are still able to keep inventory moving.”

He continues, “I see the dynamics changing for the second half of the year. As all the major smelters come back from scheduled maintenance, we should see the demand side outpace the supply side.”

Comparatively speaking

“Compared to steel and aluminum, copper looks pretty good,” a processor based in the Midwest says of scrap markets at the start of 2019.

An oversupply of aluminum scrap is dragging down pricing, while ferrous scrap pricing declined from $25 to $40 per ton, depending on the grade and region, in January, with processors pointing to unseasonably dry weather as a noneconomic factor in the decrease, though economic concerns might also be part of the picture. (See page 18 of this issue for more on the ferrous scrap market and page 24 for more on the aluminum scrap sector.)

COMEX copper pricing ranged from a low of $2.29 per pound to a high of $3.23 per pound over the last year, with the processor based in the Midwest saying pricing has been in the $2.63 range since September of last year.

“The spreads are about the same,” he adds. “There is no particular problem with that.”

Scrap situation

The processor based in the Midwest describes generation as steady, adding that suppliers of obsolete material do not appear to be holding onto scrap in anticipation of higher prices. He says demolition sector generation has picked up, despite the time of year.

Diehl says industrial generation “is coming in less clean forms.” He adds, “The scrap from EV (electric vehicle) demand is more of a niche item than the scrap that comes [from] historical manufacturing supply chains. Seemingly, the more common ISRI- (Institute of Scrap Recycling Industries-) type grades of scrap are coming from obsolete generation.”

China and Hong Kong had been the primary destinations for copper scrap generated in the U.S. However, China enacted import prohibitions for 16 types of recyclables at the end of December 2018. An additional 16 types of scrap—including stainless steel and titanium—will be banned at the end of this year.

The items banned as of Dec. 31, 2018, include “Category 7” scrap metals, such as copper-bearing motors and wire and cable scrap.

The country’s Ministry of Ecology and Environment, Ministry of Commerce, National Development & Reform Commission and General Administration of Customs also have decided to move eight types of scrap metal from China’s “Catalogue of Solid Waste Not Restricted to Import as Raw Materials” list to its “Catalogue of Solid Waste Restricted to Import as Raw Materials” list. According to a news release from the Brussels-based Bureau of International Recycling (BIR), the items will be moved to the restricted list beginning July 1.

Copper waste and scrap – other is among the items targeted on this list.

According to ISRI’s “2018 Recycling Industry Yearbook,” the U.S. exported more than 798,000 tons of copper and copper alloy scrap to mainland China and Hong Kong valued at $1.8 billion in 2017. “China and Hong Kong accounted for 72 percent of all U.S. copper scrap exports by volume last year,” the publication notes.

Despite the import situation in China, Diehl says, “Global buying remains the most common outlet for copper scrap.”

According to the ISRI yearbook, U.S. copper scrap export sales in 2017 included Canada ($284 million, up 48 percent from 2016), Germany ($143 million, an 18 percent increase from 2016), South Korea ($130 million, 19 percent more than in 2016), India ($72 million, a 9 percent increase from 2016), Japan ($90 million, up 38 percent from 2016) and Belgium ($57 million, which is consistent with 2016).

The Midwest-based processor says, “American demand is a little weaker and a little more susceptible” compared with Asian demand. However, he adds that domestic demand for No. 1 copper chops seems to be where he has come to expect it to be for this time of year, with mid-January pricing being 5 cents lower relative to COMEX compared with a year ago.

While smelters have reduced scrap buying in the first half of the year because of shutdowns related to scheduled maintenance, Diehl says their annual output is forecast to grow by 2 percent this year.

“We are also seeing an expansion of copper rod manufacturing,” Diehl says.

“Barley (No. 1 copper wire, also known as bare bright), berry/candy (No. 1 copper wire/No. 1 heavy copper solids and tubing) and birch/cliff (No. 2 copper wire/No. 2 copper solids and tubing) are moving to all the major consuming markets,” he says, noting that China, Korea, Japan, Europe and South America are popular destinations. “However, you see the percent of market share changing,” Diehl says. “China, with changing regulations and Lunar New Year coming up, is seeing a decrease in volume that is being picked up by Europe.”

He predicts a “good-size increase in birch/cliff demand in the coming years mostly because the smelter outputs are increasing but also because the availability of blister copper (an intermediate product of refined copper production) will decrease.” He adds, “Copper units as a whole are in global short supply, thus I see the competition for birch/cliff increasing steadily over the next few years. Berry/candy may also see an increase [in] demand if smelters cannot buy enough blister or birch/cliff.”

The Midwest processor says his company’s copper scrap exports to China have “dropped considerably” in the last year. He adds that his company is selling insulated wire and other copper-bearing material primarily into Thailand. A year ago, much of that material was going to Vietnam. He says the shift corresponds with Chinese consumers’ efforts to set up operations outside of that country to process scrap grades that are restricted from entering China.

A scrap processor based in the Southeast says his company has not shipped copper scrap directly to China for six months as of January. Instead, the company is shipping to Japan and Malaysia primarily. He adds that these shipments consist largely of No. 2 copper.

Diehl describes China Certification & Inspection Group (CCIC) inspections of copper scrap material as “a difficult process.” He adds, “The changes that each region is facing with CIQ (China Inspection and Quarantine) taking control of CCIC are still relatively new.”

Declining stocks

Fastmarkets American Metal Market (AMM) reports Jan. 8 that strong export demand for U.S. copper scrap has tightened spreads between scrap and copper cathode. The U.S. Midwest copper cathode premium was at 7 to 7.5 cents per pound as of Jan. 8, according to Fastmarkets AMM’s assessment, and has been at this level, which is a four-year high, since mid-July.

Lower warehouse stocks are helping to increase the premium, with Fastmarkets AMM reporting 107,581 tons in COMEX copper stocks as of Jan. 7, which is 49.2 percent less than the 211,569 tons as of Jan. 8, 2018.

The International Copper Study Group (ICSG), Lisbon, Portugal, says world refined copper balance projections indicate a deficit of 90,000 metric tons for 2018 and 65,000 metric tons for 2019.

According to CRU, London, “Copper could be one of the most fundamentally strong nonferrous metals in the next five-year forecast period due to the pending deficit in the upstream concentrate market.” The company shares this information in the write-up it prepared following its Dec. 12, 2018, 12th China Client Seminar in Beijing. “The declining ore grades and resource depletions in existing mining operations are pressing down on global mine production, which will eventually impact cathode production, causing a potential shortage in the refined metal market from 2020 onwards.”

Despite this projection, CRU says it is forecasting a lower copper price for 2019, averaging $6,437 per metric ton. “The concerns over unresolved trade frictions between China and the U.S. and potential implications for global economic outlook have dampened market sentiment, resulting in long positions being closed and yet to come back.”

The CRU write-up goes on to state, “There could be some upside risks to our forecast if the Chinese government injects more liquidity into the economy in 2019 to support infrastructure projects and private manufacturing business where most copper demand is consumed.”

The Chinese central government appeared to be doing that as of mid-January.

In December 2018 the average London Metal Exchange (LME) buying price for copper was $6,092.82 per metric ton. However, LME copper prices softened at the start of 2019 on fears that the Chinese and U.S. economies are slowing and that no resolution of the countries’ trade war appeared to be in sight. According to a Reuters report dated Jan. 3, copper prices fell to their lowest point in one-and-a-half years that day, reaching $5,736 per metric ton on the LME.

By mid-January, however, LME copper pricing was rising. Reuters reports that LME prices increased for a third straight session Thursday, Jan. 17, in response to the Chinese government’s move to add liquidity into its the financial system, leading to higher demand expectations.

“I view the LME as undervalued given the forward demand for copper units,” Diehl says. “As trade deals get settled and if inflation does start to creep up, we should have a more favorable uptrending LME. This will benefit copper scrap.”

Diehl adds that he sees “limited low-side” risk for the LME. “It might take some time for all of the factors to come together, but ultimately I see very favorable demand and pricing for 2019.”

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