The pandemic has led to an imbalance between supply and demand for red metals scrap that favors the supply side, reversing the situation processors and traders were in throughout much of 2019.
Last year, the domestic red metals scrap market was characterized by oversupply. This year, the reduction in manufacturing activity and the decrease in retail scrap trade resulting from lockdown measures to contain the spread of the novel coronavirus have decreased the volume of scrap available. While sources contacted by Recycling Today say demand has not increased appreciably from last year, it is greater than the limited supplies of red metals scrap that are available.
Bernard Schilberg, the CEO of Prime Materials Recovery Inc. (PMR), a nonferrous processor and brokerage company headquartered in East Hartford, Connecticut, says the flow of scrap into his company’s yards “is down strictly due to the pandemic.”
PMR operates processing facilities in Canastota, New York; Willimantic, Connecticut; Orangeburg, South Carolina; and Hickory, North Carolina.
While he says industrial generation is starting to open as of mid-June, retail yards are still seeing reduced intake.
“Retail facilities in many cases were closed or experienced significantly reduced flows due to [being] public-facing,” says a scrap processor based in the Northeast regarding the impact of the pandemic. “This has a cascading effect throughout the supply chain of copper.”
Schilberg mentions that some industries are doing better than others as lockdowns loosen, with automotive and aerospace having been hit the hardest. He says the construction and ammunition industries are showing relative strength, as is the data and communications sector.
Jeffrey Mallin, president of Mallin Cos., a Kansas City, Missouri-based* company that specializes in recycling insulated copper and aluminum wire as well as other types of nonferrous metals, says, “[S]crap flow has retracted somewhat due to industrial facilities backing production off and, now, just ramping back up again” as of mid-June. However, he expresses doubt that the ramp-up in manufacturing will approach the levels seen before March, adding that transportation and automotive particularly will lag.
A trader with a Midwest-based scrap processing company that operates multiple locations in that region and in the South says scrap flow into his company’s yards decreased by 30 percent to 35 percent on average in April. As of mid-June, half of that reduced flow has returned, so now the company’s intake is down by approximately 15 percent or so.
Despite that increase in intake, he says, “Consumers will find scrap difficult to get.”
As of mid-June, the trader says his company already was seeing the flow of red metals scrap into its yards beginning to level off after increasing through May.
“The run-up in COMEX helped some volume come out,” he says. But, as of mid-June, copper is trading in the range of $2.60 per pound, which has not coaxed out additional supply. “There will be no abundance of availability soon.”
Relatively strong demand
“Demand for copper remains steady and actually pretty strong,” Mallin says, adding that his company has not had any problem getting additional spot orders from domestic consumers.
He says, “Consumers are fairly confident on the sales side but tend to wonder about scrap availability with slower inbound flows and world competition for copper.”
The processor based in the Northeast says demand for his copper products has decreased by about 40 percent because of the pandemic. “Our experience has been [that] demand is quiet pretty much across most industries. [It] seems most consumers are very cautiously managing inventory levels and working hand to mouth.”
“Retail facilities in many cases were closed or experienced significantly reduced flows due to [being] public facing.” – a scrap processor based in the Northeast
He says his customers’ order books look weak through August generally, adding that he hopes to see an improvement in the third quarter.
Schilberg says that while “demand is no question off” because of the pandemic, it is still exceeding available supply.
Mitchell Goldberg, CEO of Northeast Metal Traders, a nonferrous scrap processor and broker headquartered in Philadelphia, says demand is “as good as it’s ever been.” He adds, “I think the domestic mills are competing against the export foundries and smelters and can’t afford to lose what little bit [of scrap] is out there.”
He says ingot makers are hungry for red brass, though all red metals are in demand. “All coppers are desirable right now and in high demand.”
“There’s more demand relative to supply for No. 1 and No. 2 copper,” the Midwest-based trader says. “Brass is in strong demand, but mills are not tripping over themselves to secure supply. Brass markets are strong relative to where the terminal markets are. That has to do with the pandemic and that less material is available.”
Delivery windows also have tightened, sources say.
The trader based in the Midwest says it’s easy to get a delivery appointment as of mid-June. “There’s not much of a wait any longer.” He adds that he expects that to be the case at least through July.
Goldberg also says delivery windows have narrowed, with consumers telling his company to ship all their July orders as soon as possible in June.
Spreads have narrowed, as well, though the trader in the Midwest says that while they are not “historically” narrow, “the consumers aren’t happy.”
Schilberg and Goldberg also point to a contraction in the differentials, with Schilberg saying he expects better balance in the next six to nine months, which should widen spreads.
“The industry needs to be aware that once the flow of metals starts again, spreads will widen back out,” Goldberg says. “It’s not a tightness because there are so many great sales on the consumer side. The tightness is because there is no metal. We are not going to be here forever.”
The trader in the Midwest says export buyers also have had to narrow their spreads to be able to secure red metal scrap from the U.S., though the price remains out of range for others. “Chinese and European buyers have narrowed their spreads quite a bit in the last couple of months.”
Buyers for consumers in Greece, Italy, Malaysia and China have been aggressively pursuing red metals out of the U.S., Goldberg says. “The domestic consumers have stepped up to pay what they need to pay to keep material domestic.”
Schilberg also mentions the increase in export interest from Asia and Europe. “It’s not a demand-driven phenomenon,” he says. “There’s just not that much supply.”
Changes in China
Nonferrous scrap processors and traders in the U.S. have been anticipating regulatory changes in China that will allow high-quality scrap to enter the country without the quotas they have been subject to up until this point. That change was scheduled to go into effect July 1, but as of mid-June it seemed unlikely that it would.
“Most people are operating as if that will not take effect July 1,” the trader based in the Midwest says.
The Chinese government has yet to issue key details on the new policy, such as Harmonized System Codes, which are used to classify traded products and to assess duties and taxes. Details on inspection procedures also have not been released, sources say.
In the meantime, the trader in the Midwest says deals can still be made using the guidelines that have been in force. “Sellers need to decide if they are comfortable doing that.”
The delay of this reclassification seems more likely given that China’s Solid Waste & Chemicals Management Centre of the Ministry of Ecology and Environment published a new batch of scrap import quotas June 17. This is the eighth batch of quotas issued for the year and it allows for 1,570 metric tons of copper scrap and 5,840 metric tons of aluminum scrap to be imported into the country.
If the reclassification goes into effect while copper and brass generation remain soft, it could make a tight market even tighter, Mallin says, adding that prices should increase as a result.
In the meantime, processors and traders are eager for normalcy to return to the market. How quickly that will happen remains up for debate, with some anticipating improvements in the third or fourth quarter.