RED HOT!

The copper price on the COMEX remains startlingly high, and indications are that the copper scrap market should continue to be strong into the summer with more potential toward the upside than the downside. Nobody, from the big producers to the small retailers, seems to be holding on to their copper scrap. Flow is decent.

Outside influences could change that assessment, but a dearth of scrap supply and the expectation that Chinese buyers, recovering from their New Year holiday, will continue to favor copper scrap over cathode, point to copper remaining in the $4.25 range for the time being.

For recyclers, perhaps the biggest concern will be flow. A good dealer can make money at almost any price, as long as the material in question continues to flow. Any pickup in manufacturing or housing will help scrap flow; the opposite, however, also is true.

KEEPING THINGS MOVING
“From a scrap standpoint, I think supplies will remain consistent through the spring,” says Scott Greenberg, senior vice president of purchasing and sales for Global Recycling, Charlotte, N.C.

Greenberg says he sees COMEX copper trading in a range between $4.20 and $4.45 for a considerable period—at least into the summer. The summer doldrums might drop the price into the low $4 range, but Greenberg says he does not see the bottom falling out of the market any time soon.

“Physical inventory remains low. The Chinese have ongoing demand. I don’t see any price drop anytime soon,” Greenberg asserts.

Joel Fogel, director of nonferrous metals at Cohen Bros., Middletown, Ohio, is bullish, too. While noting the traditional wintertime slowdown, which was exacerbated by a series of blizzards of enormous scale that brought all sorts of businesses to a standstill in early February, he says copper flow has been fairly steady.

“The COMEX at $4.35 raises eyebrows. The high prices brought out a lot of retailers—plumbers and home builders,” Fogel adds.

But the lack of copper scrap—even accounting for the harsh winter—has other scrap dealers concerned. “The flow of scrap is slow due to the weather,” says Mitchell Goldberg, CEO of Northeast Metal Traders, Philadelphia. “But I don’t think the lack of copper is due to the COMEX price. I think there just is not a lot of copper flowing.”

In the Gulf Coast region, supply remains consistent. “At the prices we see now, copper is flowing at a good rate,” says David Casarez, a buyer for Commercial Metals Co. in Corpus Christi, Texas.

Casarez says the material is coming mainly from retail clients who are doing small jobs and are attracted by the high prices paid at the gate. “A lot of our copper is commercial retail,” Casarez says. “At these prices, those people are going to find material and bring it in,” Casarez says. There are not a lot of large manufacturers who produce copper turnings and the like locally, he says.

On the sell side, Commercial Metals provides scrap products to buyers who are interested in copper recovered from electrical components, wire, air conditioners or refrigeration equipment.

Not everyone is feeling a supply pinch, however. “Copper is easily purchased right now,” says Dan Wycoff, general manager at Shine Bros. Corp., Spencer, Iowa. While he says he is not convinced that copper prices will stay high forever, he sees strong flow every time the market inches up a bit higher. “Right now the COMEX is so high; but, every time it gets a bit higher, people find copper to sell,” Wycoff says.

Shine Bros. runs a wire chopper that it feeds largely with material from other recyclers and dealers. That area is doing well. “The lion’s portion is not from new housing,” Wycoff notes. “It is more from demolition [and remodeling] projects.”

Nobody seems to be hoarding. Anything that was set back has moved to market to take advantage of the upticks in price. The plumber who might have waited until he accumulated 1,000 pounds of copper pipe instead is heading to market when he has 500 pounds and the price hits his mark. Likewise, a dealer who might have waited until he had three drums of wire to move will be more apt to send a single drum to market when the prices are as attractive as they are.

Wycoff says he does not see an “extraordinary” amount of copper coming through right now.

Current record prices for cathode translate into strong demand for scrap. Whether from China or elsewhere, demand for copper scrap has boomed.

Copper hovered around $4.20 to $4.40 from late December 2010 into the early New Year. It whip-sawed around for a while, trading as low as $4.26 later in January. On a per-metric-ton  basis, copper was trading at $9,250.

China’s scrap imports were up almost 10 percent last year. That reflected not only the higher cost of new metal but a sizable discount to that price—between 10 percent to 15 percent, depending on the source—on copper scrap. So copper scrap perked right along.

Copper scrap is available in a number of grades, including No. 1 copper, bare bright copper, copper pipe, sheet copper and grades of wire including heavy insulated wire. Brass sells as yellow brass, red brass, turnings, aluminum bronze, hard brass and rod brass.

THE QUESTION OF CHINA
Everyone in the scrap market looks to China as the major market-maker. February brought the Chinese New Year. Business traditionally comes to a stand-still in China for a couple of weeks as the nation celebrates. Most scrap dealers say they feel the market anticipated that change and that the Chinese should be buying copper at full-bore again through the spring.

“If China opens up, demand and prices will push a bit,” Goldberg says.

“China is a developing and growing country,” Fogel says. “I don’t think the Shanghai market has kept up with the COMEX market.”

Although high by traditional measures, the price of copper scrap still puts it in an attractive place for those who want copper—in this market, that means the Chinese.

“Overseas buyers are paying aggressively,” Casarez says. “China is the one paying most aggressively.”

Of course, the downside to any boom market is that importers may just close their checkbooks for a while and wait until the price settles toward something they feel more closely approximates normal, though defining where “normal” might be in the commodity markets these days requires the skills of a soothsayer and of a Vegas gambler.

A COMING CORRECTION?
While he has seen the reports, Greenberg says he does not anticipate a major correction in the near future. “Scrap is tight,” he adds.

Acknowledging that “there is no question” that the price of copper scrap is favorable compared to the price of cathode, Greenberg says that the market will continue to perk.

One reason for his bullishness is the rise in iron prices. “When scrap iron prices go up, a lot of nonferrous material comes in,” Greenberg says. He notes that the typical scrap seller would prefer to make one stop rather than run a truck around town to several buyers to sell iron here, copper there. They would rather sell in one lot.

Wycoff says he feels that, given the high price range of the current market, many of the more knowledgeable dealers are willing to play the market. “But when the market reaches a certain point, they sell,” he says.

Fogel says that while he has seen reports that copper is due for a correction, he questions them. “I’m hesitant when I look at these markets,” he says. “I see more potential on the upside than on the downside.”

Still, there are wild cards. Fogel says a change in the strength of the dollar, a change of heart by hedge funds or a hiccup in global activity would affect the pricing outlook for copper.

“It’s scary to see copper at $4.35,” Fogel says. “There is plenty of room to fall. But the signs I see point higher rather than lower.”

Noting the harsh winter that has slapped the East Coast and the Midwest, Greenberg says, “Scrap is in short supply. In spring, we will see a resurgence.”

Greenberg monitors seven yards and says scrap flow has been slower than he might like. Winter slammed Chicago. Charlotte was consistent, but Houston was sporadic. “I think scrap will be moving in the spring,” he says.

Goldberg is not so sure that flow will improve, even as the weather opens up. “I don’t see a pickup. I think the lack of copper is due to the economy,” he says.

Until housing and manufacturing improve across the board, there will not be any serious volume of scrap available to move into the market at any price.

“Jobs (in construction) are not what they were a few years back, but there is still activity in this area,” Casarez says. While the number of projects is down, building continues at a steady rate—and that generates scrap.

Wycoff says he fears that too many people are beginning to think that COMEX prices in the $4.25 range are the new norm. While he agrees with most others that the near-term prospects for copper prices are good, Wycoff says he would consider copper prices a full dollar below where they are now as still being high.

“If prices came into the $3 range, people would adjust. The copper market won’t stay overpriced forever,” he says.

Although there might be a short time when flow of copper scrap would tighten, he says people would eventually see the reality of $3 copper as a decent price, and material would continue to move to market.

In the meantime, most dealers say they are not overly concerned about getting copper scrap. “If copper stays where we are paying $3 or above to the public, material will continue to move,” Casarez says. “People tend not to hold on to it. Material will flow.”

And, if that prediction is correct, the red metals should remain red hot at least until summer.

Curt Harler is a freelance writer based in Cleveland. He can be contacted at curt@curtharler.com.