Chinese Buyers Snap Up Copper Scrap, Boost Prices

U.S. copper traders agreed on Friday that Chinese buyers' seemingly insatiable demand for scrap has driven the price up near primary metal prices and has squeezed supplies to the point of forcing some users to substitute more readily available copper cathode for scrap.

"The Chinese are making a big effect in the (U.S. copper) market," said one eastern U.S. copper scrap dealer.

For the last several years, depressed U.S industrial production stunted supplies of copper scrap, a byproduct in the manufacturing process. But, with orders for the red metal subdued, the supply tightness was not felt by domestic users.

Copper is used as a component in many industrial sectors, from building infrastructure to electronics to construction.

Lately, however, a step up in already robust Chinese scrap consumption has excluded many U.S. domestic consumers at a time when the U.S. economy seems to be gearing up.

"With red metal, I think there is strong demand, but there's a lack of availability right now because so much of it has gone to China," said Matthew Heitmeier, director of Non-ferrous Metal Marketing at Louis Padnos Iron & Metal Co.

"You've got the Chinese driving prices up and there's only so far the domestic market can go. The Chinese are making the scrap disappear. They're pulling the scrap out of the country like crazy, because they're just paying cash up front. Which is another perk for the dealers," said one copper broker.

"They're really squeezing the heck out of the market," the scrap broker added.

Indications from the latest U.S. manufacturing data has shown some improvement in orders and production which has provided more generation of scrap by factories, dealers said.

"We can satisfy customers a little better than we had been able to previously. But, definitely not enough to satisfy them with what they need," Warren Gelman, President of Kataman Metals, said.

Dealers said it was difficult to determine how much new domestic demand has shown up in recent weeks because of the shortage of scrap and because of the typical seasonal slowdown in the summer months when most plants shutdown for retooling and maintenance for weeks or a month at a time.

"We're seeing a slight, very very slight pick up in (domestic) business. Not enough to say there is light at the end of the tunnel. But, enough to say it's a little better than it has been," said Gelman.

Dealers said most new scrap that is generated gets snapped up by Chinese buyers at prices that U.S. users cannot touch.

"There's more demand than supply these days, because the Chinese are very hungry. They're trying to buy up practically everything in sight at crazy prices," one scrap dealer said.

In some cases, Chinese consumers pay more for scrap than for primary copper.

For instance, dealers said most bare bright grades are selling close to COMEX or more, depending on the item and whether transportation cost gets figured in.

Number 2 copper scrap, most of which now goes into the export market, was quoted around 72.50 to 73.50 cents a lb.

Number 1 burnt scrap was quoted about 2.0 to 3.0 cents below the December COMEX copper price. COMEX copper for December delivery ended Friday at 81.10 cents a lb.

With scrap trading near primary copper prices some users are substituting cathode when they cannot get scrap.

But processing scrap requires different furnaces and equipment and cannot always be substituted, dealers said

"The ones that can, do. But there are a lot of consumers out there that can't use cathode, because of the way they have to process the scrap. People are looking at what other alternatives they have. Do they need to change their processes to use cathode, or what?," said one trader.

"Some of the consumers are talking about going out of the scrap business and just using cathode," said Gelman.

Premiums on high grade cathode copper were quoted at about 3.50 to 4.00 cents a lb.  Reuters