Strong demand tightens copper spreads

Departments - Commodities Nonferrous

Electric vehicle manufacturing may be helping to strengthen demand for copper.

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January 4, 2022

Processors and traders of nonferrous scrap are predicting a strong year ahead, which is not to say they are without their concerns.

Scott Tauben, vice president of Metalsco, a nonferrous scrap trading company based in St. Louis, says demand for copper is strong and growing, in part because of the projected growth in electric vehicle manufacturing. However, he fears pricing could reach the $6 level within the next year or two, which he says would not be good as it could lead to increased theft and security problems for homeowners, scrap dealers and construction sites.

Some investment banks foresee the red metal reaching or exceeding that level by middecade. For example, as of October of last year, analysts at Goldman Sachs were predicting that copper prices could average $11,875 per metric ton, or $5.40 per pound, in 2022, rising annually until they reach $15,000 per metric ton, or more than $6.80 per pound, in 2025.

The investment bank also predicted the London Metal Exchange copper price would reach $10,500 per metric ton by the end of 2021, adding: “At the heart of our renewed bullish copper call—coming in spite of very real risks to the Chinese property sector and global growth—is the fact that the physical market is becoming increasingly tight, with minimal near-term risks to the balance in our view.”

“Quoted discounts have squeezed tighter, but export shipments are also governed by container and vessel availability, and tighter spreads have less meaning if you can’t get the product on a ship.” – Mitchell Goldberg of Northeast Metal Traders

While scrap generation still has not returned to prepandemic levels, Tauben says it has been trending upward slowly, though winter weather has the potential to interfere with scrap flows.

“We have had good flow through mid-November, but we have seen volumes slow a little in the last few weeks,” Mitchell Goldberg, CEO of Northeast Metal Traders, a nonferrous scrap processor and broker headquartered in Philadelphia, says in mid-December 2021. “I believe there are two reasons for this slow-up. First, the slight drop from $4.50 to the current market is a factor, and, secondly, the suppliers are holding inventory to manage their tax liability for year-end.”

Tauben and Goldberg say domestic and export demand has been strong for red metal scrap, though transportation continues to pose problems.

“All our consumers report full order books,” Goldberg says, with some domestic consumers buying material midmonth for December 2021 delivery and booking additional 2022 business, anticipating strong demand.

Tauben says he is also hearing that consumers are busy, noting this is likely why spreads are tightening as of mid-December 2021.

Goldberg, who says spreads are tighter than they have been in some time, predicts they will remain stable or tighten based on availability of cathode, scrap substitutes and the terminal market prices.

He mentions “phenomenal” demand from Asia and Europe. “All grades of copper and many grades of brass are easily salable. Quoted discounts have squeezed tighter, but export shipments are also governed by container and vessel availability, and tighter spreads have less meaning if you can’t get the product on a ship.”

Tauben says, “There is strong demand abroad for everything,” noting strong demand from Europe, Russia, Ukraine and Turkey.