ISRI Spotlight on Copper: Global factors affecting copper scrap

Like with many commodities, copper scrap markets have experienced downturns in supply and demand this year in response to COVID-19 and corresponding downturns in global manufacturing. 

According to London Metal Exchange (LME) data, primary copper prices are down about 14 percent this month compared with the end of 2019, while primary tin prices are down 10 percent and primary aluminum prices are down 18 percent compared with the end of 2019. 

Copper scrap prices have declined in recent months as well, according to indexes produced by the Bureau of Labor Statistics. In February, copper scrap prices declined 5.2 percent from the previous month; in March prices declined 7.8 percent from February; and in April prices slid 3.1 percent compared with March. 

“For year to date April 2020 compared with April 2019, copper-based scrap prices are down more than 21 percent,” said Joe Pickard, chief economist and director of commodities at the Washington-based Institute of Scrap Recycling Industries, during a webinar May 20.

Based on assumptions from April, Pickard said John Dunham & Associates Inc., Brooklyn, New York, calculated that the COVID-19 pandemic would lead to a decrease in about 9,000 jobs in the nonferrous recycling space and a decrease of about $2.2 billion, not including supplier impact. 

Pickard shared these figures to kick off the association’s webinar titled Spotlight on Copper. Other speakers included Edward Meir, an industry analyst at ED&F Man Capital Markets, Darien, Connecticut, and Uwe Schmidt, chief commercial officer at Montanwerke Brixlegg AG, Brixlegg, Austria. Presenters shared supply-and-demand trends and outlooks for copper and copper scrap this year.

Export markets

Export markets have shifted over the last five years for copper scrap. In 2015, Pickard said China accounted for 69 percent of total copper and copper alloy scrap exports from the U.S. For the first quarter of 2020, China only accounted for 8 percent of copper and copper alloy scrap exports from the U.S. “Malaysia, Canada, South Korea and India all accounted for a larger share of export demand than mainland China alone,” he said, adding that other nations are taking China’s place as growth markets for copper scrap exports. “Those growth markets for copper scrap this year include South Korea, India, Germany, Taiwan, Belgium and Vietnam.” 

“[China] wants to become a bit more self-sufficient,” Meir said of that country's decreased copper scrap import demand. “In sourcing scrap, they want to encourage all these smelters ramping up, and many of them are new operators, so they want to buy more concentrates; they want to source more domestic scrap themselves.”

Also, a good deal of scrap is moving to China through conduits, he said. Malaysia may have “exploded” in terms of the amount of copper scrap it imports—the U.S. exported 600 tons of copper scrap to Malaysia in 2015, whereas it exported 220,000 tons in 2019—but much of the scrap going to Malaysia is being reprocessed and sent to China.

Meir added that China has heightened the purity of copper that it will accept. China plans to reclassify higher quality scrap, which will not be subject to import quotas, July 1. “Although the volumes are down, the copper purity of what they’re getting in is record high at about 90 percent,” Meir said. “So, they’re making up for it in a way by getting better quality copper scrap.”

European perspective

During the webinar, Schmidt of Montanwerke offered a European outlook on copper scrap. He said his company, which is based in Austria, uses scrap exclusively and is expected to produce about 130,000 tons of cathodes this year. He added that his firm is the smallest refinery in Europe since Aurubis announced plans to purchase Metallo. That merger will be completed May 29.  

Although Schmidt said he and his firm were initially concerned about the Aurubis-Metallo merger and how it would affect competition, as the merged company will have two-thirds of all European capacity, he said he sees some advantages and disadvantages for Montanwerke.

“Our big disadvantage [is] we have a giant competitor,” Schmidt said. “But it’s not our biggest competitor. The big competitor in the market is China. If China is in the market, we do not have a chance to buy. But our location in the Alps region of Austria is somehow an advantage because the scrap dealers and scrap yards in our neighborhood prefer to sell domestic to us before they ship to China due to freight.”

In Europe, Schmidt added that markets were strong for the first four months of 2020. “From January to April, we couldn’t complain,” he said. But since then, scrap supplies have become tighter and a supply shortage has emerged in Europe. Schmidt cited COVID-19-related lockdowns as the No. 1 reason for supply shortages in recent months as the automotive sector shut down; however, infrastructure markets were a little more stable. 

In addition, he said declining scrap prices have intensified scrap shortages in Europe. “We trade LME, and copper was really down,” Schmidt said. “Usually scrap dealers in Europe do not hedge, so they saw prices go down. We recognized that our major suppliers could not buy from their suppliers because it was impossible for them to release material without getting into losses.”

Schmidt predicted the scrap shortage likely will continue into June and July.

Third, he said, scrap supply is short in Europe due to China. He said China has bought a bit more aggressively in Europe in recent months.