Hit the Throttle

Copper spent the winter months wallowing in the 70-cent region in most areas. That’s been a red light for the industry. Then things perked up to the 80-cent range and things began to rev up.

If copper’s numbers get well into the 80-cent range, most agree that the market will turn into a screamin’ machine. If it hits a dollar (and some brokerage houses are projecting prices in the $1.10 area), the market will take off like a fuel-burning dragster.

HIGH HOPES

Price is not the only thing affecting the copper scrap market. The copper industry, led by the Copper Development Association, New York, is involved in an important effort to retain the non-hazardous classification of secondary melting by-products (see sidebar).

Given the expected gradual upswing in copper prices as the year progresses, the checkered flag at the end of 2001 might make a winner out of most people in the market.

“It looks like the market will continually get better,” says Kent Vonberg, who runs the nonferrous division of River Metals in Louisville, Ky. He says he figures the 65-68 cent range of January is the low end of what the market will see in 2001.

“Copper supply for wire chopping saw a bit of a pickup after the first of the year,” says Jeffrey Mallin, Mallin Bros. Co. Inc., Kansas City, Mo. Demand, however, remained flat. “We haven’t seen it go up or down much,” he says.

“The average Comex is over 80 cents, and there’s nothing wrong with that,” Mallin continues. Where there is a problem is with energy costs, as the market struggles with the skyrocketing cost of energy in all forms. That adds to the cost of processing and cuts prices at one end or the other.

In January and February, most yards were slow. At that time, Vonberg said, “We’re not getting material. The market is down overall and we are not buying much scrap.” While they were moving some copper, it was not moving as quickly as it had been in the past. He had no doubt that people were holding copper back, waiting for an uptick.

In early February, things began to perk up a bit. While he terms the local market “fair-nothing to write home about,” Earl Weber of Garden Street Iron & Metal, Cincinnati, has noted some interest in the Asian market. Garden Street is a retail operation with some material going to export.

DEMAND FROM OVERSEAS

If there is one caution flag waving on copper’s track it is the Asian market. China was a big factor in the market in 2000 and definitely will remain a pivot-point for 2001. As China goes, so will go the U.S. scrap market. If the Chinese are in big, those pesky energy costs will just be a minor annoyance. If China falls out of the market, then there is going to be a lot to worry about beyond rising energy costs.

Along with Canada, Asia remains a major market for U.S. copper scrap. In Asia, China and Korea are the big players - or, at least, have the potential to be big customers for U.S. scrap.

Many feared a pull-back by the Chinese, and, indeed demand from there was slow in January. But at presstime, there were signs of change as the Chinese ventured into the market.

“As of early February, they’ve been real competitive,” Weber says of the Chinese. “They are up there with the domestic markets.” He was surprised to see them being so competitive and admits to being “somewhat shocked” that the Chinese were so close in line with domestic markets.

There is reason for hope. Last year, average copper scrap buying prices finished higher than in either of the two previous years. The average American Metal Market number two copper scrap buying price of 65 cents per pound in 2000 was nearly eight cents higher than 1999’s average, and five cents above the 1998 average.

Total recoverable copper was generally flat from January to November of 2000, according to statistics from the U.S. Geological Survey (USGS), Reston, Va. The numbers over the past year or two have been low, so the cumulative change is not great.

The domestic market for scrap from copper smelters has been depressed. Some of that has been compensated for by usage at brass mills and in the export market.

About a third of recycled copper comes from obsolete scrap while the rest comes from prompt copper-bearing scrap generated from manufacturing.

Janice Jolly, an independent copper industry analyst in Dayton, Md., says that U.S. copper production has increased by about 7.6% since 1994. In a report for the Copper Development Association, she notes that the brass mill industry consumes most of the copper-based scrap recycled in the U.S. Several copper tube and wire rod mills have secondary smelters or refineries associated with them.

“Unfortunately, some of those plants have closed, or are in the process of closing, owing to the recent poor economic environment for processing scrap and easy availability of low-priced primary refined copper,” according to Jolly.

Even given those circumstances, considering conditions in other scrap markets (including ferrous, stainless steel and aluminum), it is not surprising that dealers are chasing copper.

“We’re focusing more on the nonferrous side,” acknowledges a Texas processor whose company’s operations have traditionally been centered on iron-bearing scrap.

A Great Lakes region nonferrous dealer notes that copper’s decreased reliance on the automotive sector has helped it at a time when that industry has slashed expectations for 2001 vehicle production. “There are enough applications for copper that we have not seen the same dramatic decline in demand,” he says, “although demand is off.”

For domestic scrap shippers, the late January end to the strike at the massive Olin Brass mill in East Alton, Ill., provides for the welcome return of a major scrap destination. The seven-week strike of 2,700 employees there reduced output, although the mill continued to operate with about 900 replacement workers.

PRICE CHECKERS

“We have people calling every day, checking prices,” Vonberg says. They all seem to be waiting for some unseen price point to be reached. He eagerly awaits the time when he can offer 85 cents for No. 1 retail, and upwards to 90 cents a pound to regular dealers. River Metal gets a lot of copper pipe, wire, some insulated wire, and No. 2 copper. They run about two truckloads of No. 2 for every load of No. 1.

At Cohen Brothers Inc., Middletown, Ohio, material is moving steadily. “Flow is good,” reports Don Zulanch. “It’s more a margin thing.” The company handles a mix of No. 2 wire, bar and tubing.

Located 30 miles from Cincinnati, the company’s market is all domestic. As a result, Zulanch is more apt to watch Federal Reserve Chairman Alan Greenspan’s maneuvers than what is happening in the off-shore markets.

Others appear to be following the same tactic. While Jolly notes that copper is one of the most recycled of all metals, she says much appears to be dumped in the solid-waste disposal sites. She says that unrecovered products might run as high as 50% of all material disposed. Other estimates calculate that we actually recover about 70% of material.

“The variance in estimates from the amounts recycled are directly related to the availability of reliable data,” Jolly states.

The industry began to change in the early 1980s, with the changes continuing through the 1990s. Most U.S. reverberatory furnaces closed in the early 1980s in response to environmental pressures to clean up the air, as well as to cope with the strong dollar and a deteriorating competitive position, Jolly continues.

The reverberatory furnaces were replaced with flash furnaces that depend upon high sulfur content in their feed for efficient operation. This not only cut the need for copper scrap by primary smelters, but also trimmed the potential capacity available for processing low-sulfur, low-copper ashes and residues.

By 1999, only two secondary smelters were operating: Chemetco in Illinois and Southwire in Georgia. Their combined capacity ran 270,000 tons. Now Southwire has closed.

“A current trend in response to the disappearing secondary smelting industry has been the effort by some ingot makers and brass mills to process their own by-product skimmings, slag and other residues,” Jolly says. As much as 28% of slag and skimmings now are reprocessed in-house.

In addition, the export markets have taken off. USGS figures show exports of 185,000 tons in the first 10 months of 2000 versus just 128,000 for all of 1999. That is a major swing.

That was mirrored in the alloyed materials area, with 211,000 tons being exported in the first 10 months of 2000 versus 187,000 in all of 1999.

An uptick in two other influential sectors-home building and electronic equipment-could be the added weight that pushes copper one way or the other and influences the ultimate demand figures for copper and brass products in 2001.

Lower interest rates, reflecting the current economic slowdown, could revive the construction sector. Or, the drop in home-mortgage interest could be a reaction to an industry diving deeper into a slow-down. Even if the home market gains a second wind, its demand for copper pipe and electric wire will not be felt for some time, as fittings are part of the latter stages of homebuilding and it will take some time for the industrial scrap to reach the market.

BETTER LATE THAN NEVER

Given a few breaks-continued demand from China, an uptick in home construction, and primary output remaining fairly steady-the copper scrap market should come out of 2001 in better condition than it was going in.

Zulanch says he thinks an increase of about 5% in scrap prices is likely. “I don’t see any 20% increase, though.”

He’d find agreement from Mallin, who doubts that the market will hit the one dollar level in 2001. “In the second half, it will get into the 90’s,” Mallin says. But a dollar is unlikely. He notes that there is not a lot of demand for finished copper and still a fair amount of copper scrap on the market, so there is some downside pressure.

Yet, he is optimistic. “A Comex over 80 cents keeps the material flowing,” Mallin says.

“There is no strike. There is nobody cutting back production. But the mills are getting what they want and the spreads are there,” Vonberg says.

Like others, Vonberg has seen the prediction from Prudential-Bache of copper in the $1.10-1.15 area. “If they’re half-right [about the level of price increase], we’ll all be pleased,” Vonberg says.

Curt Harler is an environmental writer and Recycling Today contributing editor based in Strongsville, Ohio. He can be reached at curt@curtharler.com.