ISRI CONVENTION 2015: Copper markets could remain subdued

The challenges seen with copper and copper scrap markets in the short term and where the metal may be headed over the next several years was the focal point of the Spotlight on Copper session, held during the recent Institute of Scrap Recycling Industries Inc. (ISRI) National Convention in Vancouver, British Columbia.

Panelists at the session, including Patricia Mohr, an analyst with Scotia Bank; Herb Black, president of American Iron & Metal; and Adam Minter, a writer who covers the scrap recycling industry from an Asian perspective, highlighted a host of factors that have been driving copper and copper scrap markets.

In her presentation, Mohr noted that the low copper prices, as well as many other base metals, have been driven by a fairly listless global economy. “We have had three years running of lackluster global economic activity.”

Mohr also noted that a fairly strong U.S. dollar has created a fairly “deflationary” impact on commodity pricing.
As for the global economy, while acknowledging that copper prices earlier this year had fallen to the lowest level since early 2007, she pointed out that the economies of many Eurozone countries and North America are starting to return from the recession.

Another factor for the softer metal prices has been the significant expansion in mining capacity, including copper mining, which is keeping a lid on prices.

Also, while Europe is slowly emerging from a recession and the United States displaying a steadily improving economy, China continues to be a concern. She noted that China’s PMI (Purchasing Managers Index) mark has been fluctuating around the 50 mark (a number greater than 50 means economic expansion, while a number less than 50 means a contraction), which has worked to keep prices toward the downside. (China’s PMI was reported to be 49.2 in April 2015, a 12-month low)

The result is that while there has been an overall pickup in G7 countries (Canada, France, Germany, Great Britain, Italy, Japan and the United States are members of the G7), China’s economy has been slowing, although it never went negative, Mohr said. “China has overbuilt many industries,” she noted. Now, she pointed out, China’s government is looking to emphasize the service industry, which would include banking, insurance and health care. “They (China’s central government) are really de-emphasizing heavy industry. Partly the reason is due to the real issue of air pollution.”

With the conflicting factors in place Mohr feels that copper will likely average around the $2.75-per-pound level this year. However, once many of the new mining projects are complete prices should start to strengthen. “Once we get to 2017/2018, the new mines will be over and prices will start to rise, perhaps to over $3 per pound.”

Adam Minter, who focused his presentation on China, said that the country’s aging population is creating some significant labor concerns, which are already having a major impact on labor-intensive industries such as the scrap metal industry.

To compensate, he pointed out that automation is going to become a far bigger issue in China. “In South China there is lots of upgrading and automation taking place,” he said. In fact, he added, the government of Guangdong has a program whereby it intends to automate 80 percent of the manufacturing by 2020.

What also is taking place is that China is starting to shift more of these labor-intensive industries to neighboring Asian countries such as Laos and Cambodia. “Markets for the material are heading there because the labor is cheap. Meanwhile, Chinese money is going to those countries to build up the infrastructure. It is a profound shift.”

In his remarks, AIM’s Black discussed a number of macro-economic trends such as the U.S. currency and oil prices that have roiled markets over the past several quarters.

Additionally, Black highlighted the significant role that investment groups are having on copper markets. “The world is being taken over by big money, and they have no idea where to put their money.”

As for where he expects copper markets to be, Black, who said he has been trading copper for decades, expressed some exasperation on the role that these financial groups are having on the metals. “I don’t think any of these forecasts mean anything. The reality is that we might see $2.25 per pound or we might see $3 per pound. It all depends on how many people are looking to buy the material. You find people chasing the same assets.”

Black also echoed the other speakers in his concern about the China market, casting doubt on even the lowered GDP numbers for the country. “I don’t believe the consumption in China is that high.” He pointed out that a sizable number of customers that they serviced have closed down recently, adding to the overall downbeat picture of China’s economy. Reflecting these problems, Black referred to the existence of cities and towns in China that have been built but are basically ghost towns. “They are not being used.”

The 2015 ISRI Convention & Exposition was at the Vancouver Convention Centre April 21-25.