Enough to go around?

The tectonic plates of the global copper market have shifted several times over the past 20 years and seem to be pressing up against each other once again.

In 2021, the International Copper Study Group, based in Lisbon, Portugal, reported global production of refined copper rose to a record high 24.8 million metric tons, while consumption increased to a new high of 25.3 million metric tons, resulting in a deficit of some 500,000 metric tons.

Of the 24.8 million metric tons of refined copper production, 20.7 million metric tons (83 percent) came from primary material, and 4.1 million metric tons (17 percent) were sourced from copper scrap. Interestingly, as global production of copper has risen over the past 10 years, so has the consumption of scrap in the process, with the 17 percent rate holding fairly steady.

The statistics are not as clear on the consumption side, however. Although the ICSG reports refined copper use, considerably more copper is consumed globally when “direct melt” scrap is included. However, for a variety of reasons, reliable statistics in this area are difficult to come by.

In the U.S., the Copper Development Association historically has quantified scrap consumption as a component of refined production and breaks out direct scrap consumption by brass mills, ingot makers, foundries and other sectors of the industry.

Over the past 20 years, direct melting of copper scrap averaged about 30 percent of total consumption. If we apply this rate to the global industry, we are looking at approximately 10.8 million metric tons of direct scrap consumption, bringing the combined total to about 36.1 million metric tons.

Scrap shifts

When reviewing the major changes that have occurred in copper over several years, one needs to look no further than the United States and China.

Throughout the mid-1990s, U.S. smelting of copper scrap stood at about 400,000 metric tons. But the combination of environmental compliance, outdated technology and financial issues ultimately forced the closure of this sector of the industry in 2001. This, in large part, contributed to the dramatic increase of copper scrap exports. (See the chart titled “U.S. Smelter Production of Copper Scrap Vs Exports of Copper Scrap.”)

Domestic production of refined copper stood at 1.69 million metric tons in 1980, with 1.26 million metric tons (74 percent) coming from primary sources, and 430,000 metric tons (26 percent) coming from scrap. From that point, however, though refined production rose to a high of 2.34 million metric tons by 1998, the scrap component declined to just 6 percent and continued falling along with total output. (See the chart “United States Production of Refined Copper By Source.”)

Except for periods of recession, U.S. consumption of refined copper grew from 1.86 million metric tons in 1970 to a peak of 3.03 million metric tons in 2000. From that high, domestic consumption trended lower primarily because manufacturing moved to other countries where the cost of labor and other inputs was cheaper.

While the United States’ copper industry was downsizing, China’s was growing by leaps and bounds. In 2000, 1.008 million metric tons (74 percent) of total refined production were from primary material, and 348,000 metric tons (26 percent) were from scrap. In 2021, 8.209 million metric tons (78 percent) were from primary, while scrap made up 2.257 million metric tons (22 percent) of the total. This is an important point because leaders of the major copper producers in China have pledged to use 25 percent copper scrap in their production moving forward. (See the chart “China Production of Refined Copper By Source.”.)

In 2022, China imported 1.694 million metric tons of copper and copper alloy scrap, up 750,000 metric tons (79 percent) from the 944,000 imported in 2021. Further, it is thought Chinese consumers prefer imported scrap over domestic supplies because of its quality and tax rebates. Further, Codelco has advised Chinese customers that its sales of refined copper will be reduced this year, while cathode premiums will be sharply higher. Will China produce more refined copper from scrap to make up for the shortfall?

Reaching a turning point

Looking ahead, major changes are underway in the United States that represent an important turning point for the copper industry.

First, the U.S. did not have a single secondary smelter in operation over the past 20 years. In just the past two years, however, three companies have announced plans to build state-of-the-art facilities here.

Ames Copper Group, the joint venture between Connecticut-based Prime Materials Recovery and Spain-based Cunext, has commenced operations of its new 50,000-metric-ton smelter in Shelby, North Carolina. Wieland North America is building a 100,000-metric-ton smelter in Shelbyville, Kentucky, and Aurubis Richmond announced plans to build a 90,000-metric-ton capacity smelter in Augusta, Georgia, and recently said it will double the planned throughput to 180,000 metric tons.

Additionally, in terms of copper consumption, some companies are in the process of reshoring some or all of their manufacturing to the U.S. in light of supply chain issues or in response to what has happened to companies in Russia that have walked away from their investments.

These are very positive developments for the U.S., but they raise some questions: Where will all the copper scrap come from to support the global market? Also, where will refined metal come from to support the green energy transition?

A precarious position

In 2004, domestic manufacturers that depend on copper scrap as a source of raw material petitioned the U.S. government to put a cap on scrap exports because prices and export shipments were rising. The U.S. Department of Commerce ultimately determined export controls were not needed.

With global competition for copper scrap, either export controls or higher prices could be required to keep more metal within the U.S.

Additionally, because the U.S. is and has been a net importer of refined copper, with nearly 50 percent of its requirements being supplied by offshore sources, the nation finds itself in a precarious position.

At some point, it will become patently obvious that new mining operations in the country currently at a standstill because of legal, environmental or social issues will have to move forward if the U.S. is to achieve its national ambitions.

The situation also begs the question: What will it take for the political leadership in the United States to recognize that national security is at risk if the country is unable to produce the critical metals and industrial materials it desperately needs?

John E. Gross is president of John E. Gross Consulting Inc., a metals management consulting firm headquartered in Huntington, New York, and publisher of “The Copper Journal,” a widely read industry report established in 1987. Visit www.jegross.com or email john.gross@jegross.com for more information.