Holding Their Own

IMPROVED POSITION. Tim Strelitz with California Metal-X, a Los Angeles copper and copper-nickel alloy producer, says that the copper industry is doing better now than it was four years ago. The domestic copper industry has benefited, as have others, from the boom in the world economy, which has boosted demand for finished product.

While markets are good, Strelitz, who is scheduled to give a presentation at the 2006 Institute of Scrap Recycling Industries Inc. (ISRI) Convention and Exposition in Las Vegas in April, notes that his company has been able to grow its business by relying more heavily on technology and automation and less on employees.

"Smart foundries and smelters will review their business and look to automate wherever they can," Strelitz says.

But automation can only go so far. When competing with low-cost overseas producers, domestic copper consumers have to rely on strong end markets. The U.S. government is not likely to step in to protect the domestic copper industry, meaning domestic copper consumers must take steps to ensure the short- and long-term viability of the industry.

For now, Strelitz, like other copper products producers, says that, barring any unforeseen crisis, the rest of this year should be pretty robust for the copper industry, with strong domestic and overseas demand keeping raw material and finished products flowing steadily.

While many industry observers say that the short-term view for domestic copper smelters, foundries and ingot makers is promising, that hasn’t stopped others from continuing to point an accusatory finger at China.

Joseph Mayer with the Copper and Brass Fabricators Council, a copper industry group based in Washington, D.C., cites several ways in which the domestic copper industry is at a distinct disadvantage compared to Chinese consumers. Chief among them is the advantage that Chinese copper consumers have gained from their country’s currency policy. Mayer, as well as many others, says the Chinese government is keeping the value of the renminbi artificially low.

While legislation has been proposed in the U.S. Senate that would address the issues surrounding currency manipulation, it is highly unlikely any changes will result, according to industry observers.

One Ohio-based scrap recycler says that a big problem with some Chinese consumers of copper scrap is that they don’t care about the quality of the material they purchase. Labor costs for sorters are lower there, and Chinese buyers can pay a premium for material that is of lesser quality.

Despite this issue, several domestic copper producers are taking steps to ride out the market. Several of them say that the burgeoning Chinese infrastructure will require more copper products that will remain within the country, which could eliminate some of the competition for end markets.

But several copper producers say that it is becoming more challenging to compete with Chinese suppliers on pricing for lower-value finished products, such as brass fittings.

Rik Kohn, with The Federal Metal Co., a Bedford, Ohio-based brass and bronze ingot manufacturing company, looks at the current prices being paid for copper scrap and asks a question few do: Have the copper market’s dynamics permanently changed, with higher prices being the norm? The situation is similar to that of oil, Kohn says, which jumped far above its historic levels and now moves around $60 per barrel.

Kohn asks, "Is this a blip on the radar screen, or are we entering a new world order?" He adds, "We need to ask these questions."

If the copper market has fundamentally changed, the domestic industry has to figure out what it needs to do to survive.

Pricing volatility is changing the approach many domestic copper consumers are taking in regard to purchasing. "We need to buy scrap when it is available," Kohn says. When there is a lack of supply for one grade of copper, companies must be able to use another grade of material.

While prices continue to show volatility, it is becoming more challenging for all parties involved to set up coherent purchasing agreements. Some suppliers may be reluctant to commit to a certain price when pricing levels change on a daily basis.

As for end markets, while recognizing that the overall market is good, Kohn also sees much of the lower-value copper markets going toward low-cost importers. "Fittings are going away. We are looking to go to the high end of the market." This may include more reliance on the aerospace industry as a consumer of the material.

As for adding further automation to improve efficiency, Kohn is less optimistic about this, at least for The Federal Metal Co. "Our side of the industry is pretty low tech," he says. "The key is to work harder."

VOLATILE MARKETS. James Mallory, executive director of the Non-Ferrous Founders’ Society, Park Ridge, Ill., estimates that there are between 2,000 and 2,400 nonferrous foundries and perhaps a dozen copper smelters in the United States. He says that the Non-Ferrous Founders’ Society is working very closely with its members to try to develop a strategy to keep the copper business thriving in the United States.