One of the hottest scrap metal grades over the past several years has been copper. While the grade has continued to hit new highs throughout the year, several representatives who spoke at the recent Copper Roundtable held by the Institute of Scrap Recycling Industries Inc. (ISRI) see growing signs of a decline in price for the commodity. And, depending on the person speaking, a decline could be quite significant, and coming sooner, rather than later.
David Threlkeld, with Resolved Inc., a firm that trades in nonferrous metals, said, "We are enjoying unprecedented prices. If these aren’t legitimate prices we will pay for it down the year." Adding to his bearish outlook, Threlkeld acknowledged that funds are playing a much greater role in the market. In noting the role of funds, he adds, "No one knows the volume of the market right now." As a cautionary note, he said that collapses happen in September and October. Adding further fuel, he notes, "We could be leaning toward a situation where we could get fund liquidation. We have a market now that is close to double in price in the last year."
Further bolstering his bearish outlook, Threlkeld points out that substitution is starting to take place. Meanwhile, with the higher prices, consumption is going down while production is increasing.
As much as a gloomy forecast as Threlkeld holds, Megan Hovey-Carpenter, with Rosenthal Collins Group LLC, another speaker, said that while there may be some retrenching, she adds "I would expect we remain a bit stronger, with some softening next year, although not too bad."
Warren Gelman with Kaman Metals, another speaker, noted that over the past four years copper markets have moved from $.70 to $3.40. "We believe that markets are tremendously overpriced. We don’t know when the market will drop. We are seeing a slowdown in business; slowdown in housing business. It is becoming a serious business.
In supporting his outlook Gelman points out that some consumers are sharply cutting their monthly orders. Adding to the mix, "China has taken a back seat." The result is that copper has flooded the domestic market.
Threlkeld pointed out that copper production will likely increase going forward as some key strikes at copper mines in Chile have ended. "World production will increase significantly over the next couple of years. Meanwhile construction and auto production is declining."
Daniel Schwab, with Metallic Recovery Group, acknowledges the volatility in the market and as a protection against sharp moves, is keeping its speculative positions to a minimum. "My big concern is are we going to get paid. This is too much risk in the market right now. Keep it on a short leash. "
While the short-term fluctuations in copper is a cause for concern, Hovey-Carpenter noted, that "Copper is still a good investment."
The Copper Roundtable was part of the ISRI Commodities Roundtable Forum event held in mid-September in Rosemont, Ill.