Coiled and Ready

High demand and lowered production make short-term pricing look bright for red metals.

With the price of primary copper more than $1.10 per pound, or $2,450 per metric ton in the cash market on the London Metal Exchange (LME), things are looking up for the red metal market.

Credit the price increase to a whittling down of the world’s supply of scrap copper coupled with strong demand from China in the face of a pull-back in output by mining and refining operations. In the past several years, many copper scrap dealers would have sworn things never would be back in balance. Perhaps the pendulum has swung back the other way.

Since autumn of 2003, the price upturn has truly resembled a hockey stick. As a result, many small-timers (speculators who horded a little scrap and waited out the bear market) are unloading copper to recyclers who are eager to buy.

COAST TO COAST. On the East Coast, material is moving reasonably well. "I’m having no problem moving material out," says Richard Lerner, vice president of Cycle Systems, Lynchburg, Va. Finding material can be more difficult.

Lerner notes that the price is higher than it has been for years, and this is bringing out some material that had been set aside. "Your plumbers and electricians will say, ‘It’s not eating anything so let’s wait until the price goes up’," he says. With the market showing life, a lot of smaller loads are showing up on recycling docks.

"The higher price has brought more material in," agrees Larry Mallin, Mallin Bros. Co. Inc., Kansas City, Mo. Material flow is good. However, he sees his copper coming from commercial and dealer material. He has no problem moving goods out the other end. "Never in 40 years have we had all of what we need," he says.

Mallin says he has seen an increase of 17 percent to 18 percent in generation since the price increase. "That’s purely and simply attributable to the price increase," he adds.

Most of the material Mallin Bros. Co. takes in goes to the domestic market. It chops wire and produces premium product, including No. 1 bare bright, or excellent quality No. 2 copper. "Those items draw better in the domestic market," Mallin notes.

Rik Kohn, vice president for sales at Federal Metal Co., Bedford, Ohio, says the company is definitely paying more for the scrap it melts. "Copper and copper-based alloys are tight. There is not a huge amount of copper or brass out there. It’s tough to find and expensive when you find it," Kohn says.

While he says Federal Metal has not run completely out of scrap, anyone who needs to have material delivered the next day is going to pay dearly for it. Fire-refined ingot and bright copper are especially tight, he says.

"Everyone is paying far more than traditionally," Kohn says. Mallin, on the other hand, does not see much arriving in the way of alloys.

In Columbus, Neb., Sam Jacobs, president and owner of Columbus Metal Industries, is staying open on Saturday mornings until 11:30 to make it easy for the retail trade to come in and drop off copper and other materials. They have kept him busy.

"Material is flowing," Jacobs says. "The price has brought out the retail trade. You couldn’t advertise and bring out as many customers as we’ve gotten by word-of-mouth about the price increases."

While copper has been good, Jacobs notes that other nonferrous metals and the ferrous scrap segments have also been quite busy.

"We have no problem selling it, either. We can move everything we get," he says.

But a fly is hovering above the ointment: Manufacturing. "Things are very slow. There is no manufacturing," says Howard Lincoln, Lincoln Metal Processing, Erie, Pa.

While he continues to see some copper trickle in from demolition and traditional sources like plumbers, he sees little from turnings and primary scrap. "Ours is a changing area. There’s no manufacturing," he repeats. "You’ve got to have manufacturing to have any volume."

Kohn feels that, as the U.S. economy gets firmer, manufacturing will pick up. He admits it will be tough to see any jump in copper production directly related to a market upturn, but says that the material should return as the broader manufacturing sector firms up.

Lerner says he does not think big industry hordes material or actively plays the market. If the material is a byproduct of its business, it is in and out no matter what the price. If they are generating scrap, they’re moving it right out. "I don’t see any reserves coming from manufacturing," he says.

Jacobs agrees. "Manufacturing will produce scrap whether it is at 50 cents or at a dollar a pound," he says. In fact, he feels there will be more impact at the other end of the chain as manufacturers become more aware of the cost of new material. "The higher the price, the more they watch [to minimize scrap] since it increases their costs," he says.

TRANS-OCEANIC CURRENTS. Asia continues to gobble up copper. Recyclers like Lerner are shipping a great deal of copper overseas, although some remains in the domestic market.

Although he noted the traditional slow-down around the Chinese New Year, Larry Lewinson, general manager of Standard Metals Recycling, Long Beach, Calif., says things are going well. "Market flow is still good," he says.

The No. 1 material typically will stay in North America. No. 2 may stay at home or it may go overseas. The lower grades typically find their way to a ship and off to China or elsewhere in Asia. Korea, for example, was a big buyer of No. 1 and the better grades of copper, while China took time off for the New Year.

"China is aggressive," Lewinson says. As most players agree, the Chinese are in the market mainly for No. 2 or lower. "The price comparison with No. 1 is not competitive," Lewinson says, but he adds that he hopes that will change.

Clouds could be forming in the Chinese market. In the last four months of 2003, the Chinese purchased massive amounts of material. While it is doubtful they have fully sated their needs, the huge amounts the Chinese did purchase could give them room to pull back if the world price does not look attractive.

Additionally, central Chinese government authorities have several times warned the provincial governments and bankers in China from "over-investing" in some segments of the economy, with the metals sector almost always singled out.

However, most observers feel it is unlikely China will pull back steeply or for long. Kohn says he does not expect the Chinese to back off on their demand for copper. Other observers agree that the Chinese seem dedicated to growing their metals industry and, while there may be hiccups, that the Chinese will continue to buy copper and copper alloy.

Even from the Midwest, companies like Columbus Metal are shipping material to China. Although the No. 1, bare clean copper and other top grades tend to stay in the country, China appears set to gobble up all the No. 2 and insulated wire it can find. "We can move everything," Jacobs says.

ROADMAP TO FUTURE. Noting that prices and flow both are good, Mallin says, "I’m looking for this [market] to continue through the second quarter." However, he is reluctant to look much farther ahead.

Almost all the scrap dealers would agree with Lerner who, despite 32 years in the business, says he has not learned to predict prices. "If I could predict copper, I’d be in the Bahamas, not here," he smiles. "I threw my crystal ball away a long time ago."

"When you think you know what the market is going to do, that’s when you get burned," says Mallin.

Still, there is near-universal agreement that copper will go into the books having a strong showing in the first two quarters of 2004. Lerner says demand appears to be strong in the face of a material shortage.

"The big question is how long this market will last?" Lerner says. He says he expects the strength to remain for the next few months.

The author is a Recycling Today contributing editor based in Cleveland. He can be contacted at curt@curtharler.com.