Inner Strength

After several lean years, the copper price took off in 2004, as rising demand from China pushed the refined copper market into deficit. After breaking through one ceiling after another, the cash price for copper finally peaked in mid-2006 at nearly $4 per pound.

What goes up must come down, and this rapid ascent was followed by a downward correction, but only by a fraction of the increase. Since the 2006 peak, high, but volatile, prices have been the order of the day, and during the first half of 2008 the cash price averaged $3.68 per pound.

This increase in the copper price has been mirrored by a rise in the recovery of copper scrap, which reached a low point in 2003 before rebounding sharply in 2004 and has continued to increase ever since.

The high copper price has resulted in increases in the supply and demand for scrap. Higher refined copper prices have brought forth more scrap, as scrap prices throughout the collection chain also have increased. In a rising market, hoarded scrap is brought to the market, and supplies increase. As the price has stabilized at the higher level, this speculative activity has declined as the supply of hoarded scrap dwindles. However, availability has remained good as collection rates continue to be high, and scrap is moving rapidly through the collection chain. When the price is high, so are the costs of holding stocks, and inventories at all stages of the production chain are kept to a minimum.

As scrap availability increases, so do the discounts or refining charges scrap processors receive, and effectively the price of scrap falls. High-grade scrap is now considerably cheaper than primary cathode, and semis producers are now maximizing their throughput of scrap.

Copper producers, too, are substituting scrap for primary materials where they can, though for many the extent to which this can be done is limited technically. Substitution for primary material has been further encouraged by the tight world market for concentrates and is particularly noticeable in China, where producers are turning increasingly to scrap.

Where is all this scrap being consumed? As might be expected, Chinese scrap consumption has more than tripled since the beginning of the decade, from nearly 700,000 metric tons (copper content) in 2000 to an estimated 2.7 million metric tons in 2007. The growth in consumption has been in both new copper production and in the semis industries, which have both grown very rapidly. Total refined copper production in China was 3.5 million metric tons in 2007, of which scrap materials accounted for around 35 percent, more than 1 million metric tons of copper. Consumption of all grades of scrap has risen, but it is the use of high-grade scrap in converters and anode furnaces that has shown the greatest increase.

The two largest Chinese scrap processors are Jiangxi Copper and Yunnan Metallurgical Group. Jiangxi Copper already processes scrap materials as well as concentrates at its Guixi plant and is installing a new furnace at Qingyuan that will specialize in processing scrap materials. Likewise, Yunnan already treats some scrap materials at its Isasmelt furnace in Kunming and is planning to install a second Isasmelt furnace that will specialize in scrap materials at Qingyuan.

Shandong Jinsheng, Ningbo Jintian and Tianjin are all specialist scrap processors. Jinsheng and Ningbo Jintian operate anode furnaces and electrolytic refineries.

We have seen that the recovery of copper from scrap sources in China has risen impressively in recent years, but where has this scrap been coming from?

China is a major scrap importer. Official statistics suggest that imports totalled 5.5 million metric tons (gross weight) in 2007. According to the statistics, imports have grown during the last five years, up from 3 million tons in 2002.

But many doubt the accuracy of these statistics in light of unreported inflows and misreporting. Some of the recent reported growth in imports is believed to be because of improved official reporting of the trade flows, rather than an actual increase in imports.

Nevertheless, the statistics do indicate the main sources of supply, which are Japan and other Asian countries, Europe and the U.S. Countries in South East Asia are centers for dismantling and processing electrical goods and electronic scrap.

China’s domestic availability of scrap is also rising. Rapid economic development has meant the consumption of many copper-containing products has risen sharply, and the short life of some of these products, such as electronics, means they are already being returned as scrap.

The ownership of home electrical appliances has grown markedly throughout the last 20 years, and Antaike Information Development Co., Beijing, has estimated that, since 2003, at least 5 million TVs, 4 million refrigerators and 5 million washing machines have been discarded per year. The present computer count is nearly 20 million units, while some 190 million mobile phones are in use. At the end of 2003, the Association of Recycling Home Electrical Appliances was set up to promote recycling of those devices in China.

The availability of domestic scrap in China has increased in the last 18 months to two years and is expected to continue to grow. In addition, the growing needs of copper producers and consumers of scrap, coupled with increasing environmental awareness, are ensuring that more domestically generated scrap is being collected.

China now has a number of major centers for scrap handling, dismantling and trading: the Yangtze River delta in Zhejiang province, the ZhuJiang River delta in Guangdong province, and the Circum Bohai coastal region covering Hebei and Tianjin city. Major centers in Zhejiang province include Taizhou and Ningbo; the latter is home to major scrap processor Ningbo Jintian. Yongkang and Yuhuan are major centers for hardware, valve and plumbing fittings, with production based on secondary copper. Qingyuan in Guangdong province is also a major center for scrap, and Jiangxi Copper and Yunnan Copper are installing secondary processing plants there. Nanhai is a major scrap trading center.

Tianjin city in the north of China handles around one-third of imported scrap in addition to domestic scrap. In Jinghai in Tianjin province, an environmental protection industry park has been established, and currently there are 43 scrap dismantlers. Much of the scrap is consumed by wire rod and cable manufacturers in the area.

High-grade scrap can be used directly in the production of semi-manufactured products, including sheet and strip, rod, foil and plumbing tube, by copper and brass mills. For some applications, primary cathode must be used, such as in electrical products, fine wire, copper rod and bar and tube for air conditioning units. However for many products, scrap can be used in place of cathode. The largest consumer is brass rod, accounting for around 43 percent of total scrap used.

The amount of scrap consumed by the copper and alloy mills varies and depends on the end-use industries. All brass rod and alloy wires can be made from scrap, while scrap only accounts for some 5 percent of the copper used in wire rod.

A large proportion of the scrap consumed by producers of semis is new scrap, sometimes referred to as "run-around scrap." This scrap material is generated at mills or at semis plants and is returned directly to the mills. The amount of scrap generated varies from product to product. For instance, some 30 percent of consumption is returned as scrap from the tube manufacturers.

However consumers also purchase "old" high-grade scrap, substituting it for new cathode where possible. The amount of old scrap treated depends on the relative prices of cathode and scrap. In times of high cathode prices, the proportion of scrap treated normally rises as the price differential makes it more favorable.

The author is a principle consultant, copper raw materials, for CRU Analysis in London. She can be contacted at Christine.Meilton@crugroup.com.

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