US Copper Scrap Spreads Hold Tight, Trade Eyes SARS

Copper traders said may 9th U.S. scrap spreads remained tight, squeezed by a lack of domestic supply and near-insatiable buying from China. But SARS could limit U.S. scrap exports if Chinese refineries shut down to prevent the spread of the deadly disease.

"Copper scrap spreads are tight after they narrowed in the last few weeks," the president of one U.S. scrap firm told Reuters on the sidelines of the American Copper Council's spring 2003 meeting in Montreal.

Dealers said the discounts under COMEX copper futures that buyers have to pay for scrap could contract even further if metal supply stays scarce.

Scrap inventories and fresh intake have been low since 2001, traders have said, due to a reduced level of industrial output since the U.S. recession of 2000 and jitters about U.S. economic growth.

Intense consolidation in the U.S. copper scrap processing industry in recent years and a reduction in domestic smelting capacity of recyclable material, mixed with more export competition, were drawing scrap out of the country, sources at the Montreal ACC meeting said.

China has since become a key destination for low-grade and insulated-type copper wire, while South Korea and Japan have been buying higher scrap grades. Domestically, from the Mountain states eastward, demand is greatest for clean copper, including No. 1, while for No. 2 scrap, the best value was exporting, with exception of some specialty packaging.

"China has been the big factor in scrap," one trader said. "They are even coming into the market to buy from the distributors now. All the No. 2 scrap is going to China."

Canadian investor Herbert Black, who runs the American Iron & Metal recycling plant in Montreal, said in a speech that since the Chinese have been willing to pay up for No. 2 scrap, he was sending much of it overseas.

Paul Healey, senior manager for recycling at Noranda Inc. said, in a presentation, that exports of No. 2 to China should continue at their feverish pace for now. But he added: "Once copper prices improve a bit, I think it's going to become a lot easier for domestic people to compete, just because there will be a lot more material to deal with."

Market participants are concerned, however, that Severe Acute Respiratory Syndrome could begin to dent Chinese demand for copper if it shuts plants there, as the Asian giant takes precautions to contain the spread of the disease.

The World Health Organization has advised against travel to two more provinces in China and the capital of Taiwan, as WHO experts headed to China's hinterland where they fear SARS is beginning to spread fast.

WHO experts say China is key to containing the global spread of SARS, which has now killed more than 500 people and infected more than 7,300.

Still, a negligible amount of U.S. scrap copper is available, and that was keeping discounts tight this week, traders said.

Scrap dealers quoted No. 1 grade copper at a 4.5 cents discount to copper for July delivery on the COMEX division of the New York Mercantile Exchange.