Supply & Demand

Theories abound as to why the price of copper has soared to an historically high range in the past 10 years, with the metal’s role as an investment product pointed to by some as a reason to think the commodity’s value is overdue for a “correction.”

At the recently concluded Middle East Metals Recycling Conference, held in Dubai in early March 2013, a number of presentations addressed the copper market’s fundamentals.

While by no means disputing that some investment dollars have been put into copper, the event’s speakers also outlined a number of supply and demand reasons that back up the red metal’s red hot status.

Practically Precious
Michael Lion, chairman and director of Sims Metal Management Asia Ltd., Hong Kong, told conference attendees several factors are causing copper to be considered “the new gold.”

On the demand side, as several Asian nations have experienced strong, steady economic growth, “demand for copper has grown far faster than for other materials,” Lion said.

Copper has proven to be a metallic element that is vital for allowing people around the world to enjoy the technological advances the planet has experienced in the past century.

Electrical wiring allows cars being built all over the world to start up and for the drivers of those cars to see the road ahead of them. In 2012, that was no small amount of copper wire, as some 63 million passenger vehicles and 21 million commercial vehicles were produced last year, according to the International Organization of Motor Vehicle Manufacturers, Paris.

In nations with booming economies, passenger trains, subway lines and airliners also are being deployed in record numbers. These large passenger carriages are typically wired with copper from front to back, with the red metal playing vital electro-mechanical roles.

At home, established middle-class populations in the developed world and burgeoning middle classes in the developing world are entertained, can refrigerate or freeze a month’s supply of food, can see at night and can communicate long distance because of copper wiring. As well, copper tubing helps keep that food preserved and also converts hot air to cool air—no small task in the hot climates that host wide swaths of the emerging markets.

Brass plumbing fittings play another vital role in emerging middle-class lifestyles, helping to ensure fresh water flows freely in homes and throughout the cities hosting hundreds of millions of new urban migrants.

At urban workplaces, whether an office or a manufacturing plant, electrically powered devices have increased productivity and efficiency by multitudes.

The spread of this copper-intensive lifestyle is reflected in urbanization figures for high-GDP-growth nations such as China. (See the sidebar “City Living”)

It also is reflected in copper production statistics. In 2011, world refined copper production was an estimated 19.8 million metric tons, up from 15.2 million metric tons in 2002.

While the demand for copper escalates, the world’s copper mining companies strain to keep up with this demand. “There is usually not enough of it,” Lion said of global mined copper output.

Producers are very cognizant of avoiding overcapacity, he added, and even when striving to provide more copper, “production never seems to meet its targets,” Lion told attendees.

Recycling's Role
As the developing world craves more copper, recyclers of copper and brass scrap grades have played important roles in feeding that craving.

Some 40 percent of the world’s copper is made of recycled metal, according to Mujtaba Mir, director of Dubai-based Mir Metals Trading LLC, who also addressed attendees at the Middle East Metals Recycling Conference.

Mir paid special attention to the Gulf Cooperation Council (GCC) region and its ability to collect and export copper and brass scrap to other parts of the world.

Some 16,000 tons per month of copper and brass scrap are generated in the eight-nation GCC region, according to Mir’s estimate, with very few destinations to melt that scrap within the GCC.

Half of the generated total occurs in the United Arab Emirates (UAE), with generation “increasing day-to-day,” Mir said. The booming construction sector yields much of that scrap, with wire, cable, tubing and pipe being common types of scrap.

In another presentation, economist Shady Shaher of Standard Chartered Bank’s Dubai wholesale banking office said there are sound reasons why the construction boom in the GCC or entire Middle East and North Africa (MENA) region can continue to produce this red metal scrap.

Citing the “the three Ds—demographics, diversification and differentiation,” Shaher said the GCC’s oil-rich nations in particular are putting considerable investment into infrastructure and economic expansion.

In the MENA region overall, 55 percent of the population is below the age of 24, a demographic factor that points to future economic growth.

In part because of the size of this future labor force, investments are being made into economic diversification beyond oil production, which is not labor-intensive.

The differentiation Shaher refers to is the very different economic factors, such as oil reserves, that separate nations within the MENA region from each other.

Oil-rich Saudi Arabia is growing both in population and in government spending, with much of the spending on metals-intense infrastructure projects. Government budgets there are “about doubling over the past few years” said Shaher, and even so the kingdom tends to run at a surplus because of its oil-related revenues.

The Saudi government has been building schools and colleges throughout the kingdom. It has recently built “19 hospitals, with another 102 under construction,” Shaher said. As well, the kingdom is financing multiple power projects and “has 36,000 kilometers of roads under construction.”

Investments in economic diversification by the Saudi government involve attracting foreign investment to industrial zones and developing industries downstream of petro-chemical refining, such as manufacturing plastic auto components.

Similar infrastructure and economic diversification efforts are underway in the UAE and Qatar, stimulating metals-intense activity that both consumes finished copper and generates copper and brass scrap.

There is no shortage of willing buyers for the rich flows of red metal scrap emanating from the Middle East, with India and China being the most common destinations. “India knows and likes this material,” Mir said of the red metal scrap grades packaged in the GCC region.

Speaking at another session at the same conference, Muzammil Haji Amin of Dubai-based ALA Metals LLC noted shipping red metal scrap from the busy Port Dubai involves “quick shipments to India and the Far East, with less transit time [compared with Europe or North America] and freight rates are close to zero in some cases.”

Far East Horizon
For many red metal scrap processors in North America, the market in China remains the predominant export market.

Speaking at the Middle East Metals Recycling Conference, Wu Yan of the China Nonferrous Metals Industry Association Recycling Metals Branch (CMRA), affirmed that China’s secondary copper production industry “relies on imports.”

Chinese recyclers, brass mills and copper refiners import as much as 4 million tons of copper-bearing scrap each year. Wu said she foresees the construction, power, transportation and consumer electronics industries in China continuing to require copper (and thus imported copper scrap) for many years to come.

China’s federal government, she said, is supportive of the secondary copper industry and has earmarked funds in its 12th five-year plan to improve technology at copper smelting and refining plants as well as at the scrap facilities that help prepare the feedstock for this sector.

“Technological development is very important,” said Wu, for environmental reasons and because labor costs are rising, making improved automation worthwhile. “It is a big challenge for some traditional recycling companies,” Wu said of labor costs. “They must [invest] to change their method of processing.”

In 2012, recyclers in North America sold less copper-bearing scrap by volume to China compared with what was shipped from the region in 2011.

Statistics compiled by the United States Geological Survey (USGS), Reston, Va., had the U.S. shipping 383,000 tons of copper scrap to China in 2011 and 557,000 tons of copper-bearing alloyed or mixed metal scrap, for a total of 940,000 tons.

As of early March, the USGS had not yet finalized its December 2012 figures. But in the first 11 months, the U.S. shipped 315,000 tons of copper scrap and 494,000 tons of alloyed and copper-heavy mixed metal scrap. If this total of 809,000 is joined by a 2012 monthly average of 73,500 tons, that equates to just 882,000 tons shipped from the U.S. to China in 2012, down 5.8 percent.

To what extent this reflects that China is generating and processing greater amounts of red metal scrap within its own borders is difficult to discern, as statistics are not necessarily gathered or distributed within the country.

Presenter Scott Newell of The Shredder Co. LLC, Canutillo, Texas, noted that 30 auto shredders now are installed in China, and he predicted that it will only take a few years before the shredder population there reaches 100.

The shredder increase, he noted, is indicative of a larger stream of end-of-life cars and appliances that not only will produce ferrous scrap but also additional nonferrous flows. China also has an expanding network of more than 70 licensed electronic scrap shredding facilities, which likewise will yield more red metal scrap from the postconsumer sector.

At least one presenter at the Middle East Metals Recycling Conference, however, expressed optimism that as China begins its new year, it will result in increased scrap buying.

As China transitions from the year of the dragon to the year of the snake, Amin of ALA Metals said, “We expect good business in China this year, starting in March. There are better days to come.”

The author is editorial director of the Recycling Today Media Group and can be contacted at btaylor@gie.net.