ISRI ROUNDTABLES: Copper Heads Up and Away

Copper trading at more than $1.00 per pound seems hard to remember for most metals traders, but it could be “Back to the Future” if a forecast presented at the Institute of Scrap Recycling Industries Inc. (ISRI) Commodity Roundtables is correct.

Addressing attendees of the Copper/Brass Roundtable Wednesday in Rosemont, Ill., Malcolm Southwood of J.B. Were Ltd., Melbourne, Australia, predicted copper would remain on a relatively even pricing keel in 2004 with an 83 cents per pound average in 2004, followed by a price climb to 92 cents in 2005 and up to $1.02 per pound in 2006.

The predicted price rise in red metals will be led by constrained supply, steady and slowly growing demand in North America, Europe and Japan, and continued strong demand for copper from the rapidly growing economy in China.

Southwood says China’s strong annual growth in demand for copper—whether at 9 percent or even higher—should continue for some time, and commented that the situation is not unprecedented.

As the economy of Japan rebuilt after World War II, it experienced an amazing 40-year surge of almost uninterrupted growth in copper demand (sometimes in double digits) as it rebuilt and modernized its industrial, residential, telecommunications and electrical infrastructure.

China’s government is undergoing a similar effort as it industrializes and modernizes large portions of an economy serving more than one billion people.

“China is the world’s largest and fastest-growing consumer of copper,” Southwood remarked. “Even at slower growth rates for several years, the demand is enough to create ‘demand tension.’ The more important implication is in the long term.”

For scrap dealers and processors, the pricing news may be good, but the massive shifting of copper to China does not bode entirely well for U.S. dealers. Most of the copper being consumed in China, says Southwood, is going into construction, electrical and domestic transportation applications, meaning North American scrap recyclers are not likely to see any of the red metal heading back to their facilities.

In the near-term, though, as long as China stays hungry for copper, U.S. dealers should have a ready market and improved prices. Southwood says even with a conservative 9 or 10 percent Chinese copper annual consumption increase, “we create demand tension. If that’s what happens, the global market looks to soon be demand-led.”

Andy Cheung, FM Metals (USA) Inc., Pasadena, Calif., another Roundtables speaker who purchases copper scrap for a facility in China, concurs that China will remain hungry for copper.

Statistics he presented indicate that Chinese smelters can procure just 71.7 percent of the copper they need from Chinese sources, with cathode production outpacing concentrate production in the foreseeable future in China.