Continuing a trend that began in the fourth quarter of 2017, copper scrap dealers are seeing extended delivery dates from their domestic consumers as supply outpaces demand. This situation, as well as softer export buying, is contributing to the wider spreads recyclers are reporting.
Moving, though slowly
The nonferrous marketing manager for a scrap processing company based in the Midwest says that while U.S. copper scrap generation varies by grade, it has been increasing generally.
“Higher terminal market pricing in conjunction with China backing away from the copper market has certainly increased domestic supply on the copper commodities,” he says.
Generation from the demolition and construction sectors is stronger than the marketing manager has seen in the past few years. “Capital investments being made by domestic manufacturing companies to replace and upgrade older equipment are generating increased scrap. The material pickup is seen across the board, from increasing scrapped out CNC (computer numerical control) machines to entire plant demolitions,” he says.
The chief operating officer for a scrap processing company based in the Northeast says obsolete generation is about where he would expect to see it in the Southeast region, which is where he is based. “It is probably a little bit above where we would be traditionally.”
He attributes the increase in obsolete supply to the upward trend in COMEX pricing for copper, which he says is spurring more interest in the metal.
However, as the Institute of Scrap Recycling Industries (ISRI), Washington, notes in its Jan. 8 “Weekly Market Report” email, copper scrap prices have not matched the price gains seen at the commodity exchanges.
ISRI, citing American Metal Market data, states “the discount on No. 2 copper scrap delivered to U.S. refineries stood at around 42-43 cents per pound in early December 2017. In comparison, the spread on No. 2 copper scrap was around 17-19 cents in June 2016.”
The association also mentions that “scrap market participants are questioning whether terminal market copper prices reflect physical market fundamentals or speculation,” which has been fueled in part by China’s clampdown on scrap imports and expectations that its consumption of copper cathode and other forms of refined copper will increase as a result.
A broker based in the Midwest also points to steady generation of obsolete material. However, he adds that “you can’t match it up” on the demand side. “No. 1 copper is hard to find, but I have demand for it, while bare bright is everywhere, but I can’t get mills to take it.”
He adds that “chops are everywhere” and that the domestic market has been unable to keep up in terms of demand.
More generally speaking, the source in the Southeast says, “Demand is good, but supply must be better than demand.”
Delivery appointments for copper scrap have not been readily available, he says, though—at three weeks to 30 days—they are not as far out as they were in the fall.
The marketing manager attributes softer demand for No. 2 copper to lower-than-expected volumes of orders at rod mills and ingot makers.
“Otherwise,” he says, “higher copper markets have caused an increased amount of supply to enter the market, thus driving pricing down. But we believe the wider spreads to be a result of increased supply amid steady demand.”
The marketing manager continues, “We believe that commodities like bare bright will see demand pick up as the Chinese consumers are forced to compete or pay up for cathode or equivalently clean copper units.”
As of mid-January, the broker characterizes demand from domestic consumers as being lower, adding that consuming facilities are not running at 100 percent. “They are generating enough return scrap to get what they need,” he says.
It is common to see a seasonal depression in copper scrap demand going into the end of the calendar year, says the nonferrous marketing manager. “Although we did not see much of a pickup in January, indications are that demand will pick up in February and remain strong through the spring and summer.”
He adds, “Consuming facilities are reporting lower than anticipated sales for finished goods at the moment, but order books appear to be quickly improving.”
The export picture
Export buying activity has been mixed, the marketing manager says. “Understandably, our Chinese customers have been unable to purchase the same materials they had been over the past several years, but other consumers have emerged.
“In recognition of the transition that is occurring from Chinese consumers moving to other countries, the Indians have been aggressively attempting to gain market share,” the marketing manager adds.
According to AMM, the Chinese government has issued the first two rounds of solid waste import licenses for 2018, and copper scrap import license numbers and tonnages are down by more than 94 percent each.
The marketing manager says these reductions are a “temporary inconvenience.” He adds, “China has taught the rest of the developing world a valuable lesson as it pertains to acquiring affordable raw materials through the leveraging of their labor markets. We are already seeing several customers moving operations to other countries where there is a high demand for materials and low costs of labor.”
As a result, the marketing manager says, “We are still moving many of the commodities that we had been, just delivering to different ports.”
When asked if his company has made any adjustments to its operations in response to China’s harder line on scrap imports, he says, “Any changes that we have made are simply to process materials further as opposed to selling as-is.”
He adds that this decision is driven by economic considerations. “If a market for material in one form disappears, we will process the material further until we have a saleable commodity yielding the highest margin available.”
The source based in the Southeast says his company has been shipping very little material to China, though he adds that it did send a load of motors there as well as one load of birch/cliff in January.
In addition to the widening spreads recyclers are dealing with, rising transportation costs associated with the shortage of trucks and drivers are eating into the margins of copper scrap dealers.
“The shortage is certainly being seen on the pricing being offered by transportation companies,” the marketing manager says. “As of now, we are paying considerably more to move material, but have not ultimately had many issues securing transportation if you are willing to pay the going rate.”
The source based in the Southeast says the higher prices and tightness in the trucking sector have only gotten worse since the initial disruptions caused by the hurricanes in Texas and Florida. He points to regulations requiring drivers to electronically log their hours that went into effect in mid-December of 2017 as the primary reason. He says his company is double-booking trucks just to be sure it gets service.
“It’s not a bad thing,” he says of the new requirements, “but it will take a while for the market to adjust.”
The Midwest-based broker also blames the hours-of-service regulations for the tightness in the trucking market and the rising prices. He says he’s seen trucking rates double. “It is going to turn into instant inflation because products are going to start costing more,” the broker says.
Despite the challenges currently facing copper scrap dealers, the marketing manager based in the Midwest remains “cautiously optimistic.” He says, “We believe that we will see a higher average price for the red metals as compared to 2017; however, domestic mill demand remains in question. If order books continue to build, and the Chinese economy remains strong, then we believe that we will see spreads come in considerably.”
An extended version of this article, with additional information, appears in the February 2018 print edition of Recycling Today, and can be viewed online here.