Red Metal Rising

Steel Dynamics Inc. and La Farga Group hope to strengthen the domestic copper market through a joint venture.

Naysayers say unfair trade practices by China, a regulatory environment that makes it more expensive to operate in the United States and a general move away from a manufacturing base in the United States are the factors behind the decline in domestic copper production. The few remaining U.S. copper producers have struggled to compete against Chinese copper producers, who seem to purchase a growing percentage of copper scrap every month.

However, Fort Wayne, Ind.-based Steel Dynamics Inc. (SDI), one of the largest steel producers in the United States, has plans to build a secondary copper smelter in northeastern Indiana in partnership with the Spanish firm La Farga Group. The joint venture company, known as SDI La Farga LLC, will produce copper wire products exclusively from copper scrap.


Stronger Together
While SDI is primarily known as a steel producer, it has diversified by partnering with the La Farga Group, a Spanish company that specializes in copper production, primarily in Europe. The project gives La Farga an opportunity to expand its business to North America.

Roy Perala, who has been with SDI for 17 years, is the general manager of SDI La Farga. He says SDI will own 55 percent of the joint venture, while La Farga will own 45 percent. The facility will use No. 2 copper scrap to manufacture a number of copper wire products.

While the venture might seem like a bit of a stretch for a company that has developed a reputation for being one of the lowest cost, most efficient steel producers in the United States, the SDI subsidiary OmniSource Corp., Fort Wayne, Ind., is one of the world’s largest scrap metal recycling firms and will be the primary supplier of copper scrap for SDI La Farga.

Perala says that while the copper smelting operation may be a departure from SDI’s steelmaking roots, the joint venture will incorporate many of SDI’s business practices, including many incentive-based programs to develop a low-cost copper product.

He also points out that La Farga brings a tremendous amount of knowledge on melting copper scrap that it has developed through its operations.

La Farga, through its subsidiaries, manufactures and markets various types of copper products internationally. Its subsidiaries engage in the manufacture of semi-finished copper products, including copper wires, wire rods, billets and railway products, from recycled copper; production, sale and distribution of copper pipes to plumbing, heating, air conditioning, refrigeration and industrial markets; and manufacture of electrolytic copper rods from high-grade cathodes. The La Farga Group will provide its unique manufacturing technologies to the project.

When the deal was first announced, Mark Millett, president and COO of Steel Dynamics, said, “We are proud to incorporate the advanced manufacturing technology of La Farga Group in a state-of-the-art facility that deepens our commitment to northeast Indiana and Allen County.”


Settling In
The new manufacturing facility is being built in an unincorporated area outside of the cities of Fort Wayne and New Haven, Ind., on nearly 76 acres. The facility will cost nearly $39 million and is expected to be complete by the first half of 2012.

Ashley Steenman, senior development officer for the Fort Wayne/Allen County Economic Development Alliance, is the organization’s point person for the SDI/La Farga project. The Fort Wayne/Allen County Economic Development Alliance is an organization that focuses on retaining and expanding business in Allen County. Steenman says the location is zoned for heavy industry and is practically across the street from Superior Aluminum Alloys, a secondary aluminum smelter that SDI owns.

Perala says that while the company has most permits in place for the new plant, it is still waiting for its final air permit, which should be granted by the end of August.

When fully operational, the facility will produce 180 million pounds of copper wire rod per year, roughly 5 percent of the total copper produced in the United States. According to Bob Weed, vice president of original equipment manufacturing for the Copper Development Association (CDA), New York City, total North American copper production is between 2 billion to 3 billion pounds per year.

Steenman says the project has given Allen County the impetus to invest to improve the road and the drainage system that runs between the new copper production facility and the Superior Aluminum plant. “This should help us open up for future development,” she says. 

Although SDI will have two manufacturing plants proximal to each other, this will provide few advantages. Ben Eisbart, OmniSource executive vice president and chief compliance officer, says apart from some logistics savings, the decision to build near the company’s existing site hinged on the availability of the land needed for the project.

However, Perala adds that the location is only 10 miles from one of OmniSource’s larger scrap metal facilities.

Eisbart says engineering at the copper smelting plant has been completed. The company also has met with residents in the area to make sure there aren’t any significant problems or concerns when the plant opens. The company also has started hiring a number of key management personnel to run the plant; in total, SDI La Farga says it expects to hire from 35 to 40 people initially.

While the Indiana project will be the first in North America for La Farga, Eisbart says OmniSource has done business with the Spanish firm in the past. “The relationship between the two companies has been very good,” he says. “We have some synergies here.”

SDI says it expects OmniSource to benefit from a new alternative domestic market for its copper scrap. During the past several years, a large and growing portion of copper scrap has been exported to China.

Perala, however, isn’t overly concerned by the shadow China casts in the copper scrap market. “We believe we won’t have any issues with China,” he says. The Midwest location will likely mean lower transportation costs when shipping material, and payments likely will be much quicker than those for offshore shipments.

Additionally, by using copper scrap rather than copper cathode, the company expects to enhance SDI La Farga’s profitability. While it is likely SDI La Farga will consume a significant amount of copper scrap supplied by OmniSource, Perala says the plant will purchase raw material from a range of suppliers in additon to OmniSource.


Opportunities Abound
While the number of companies making copper products in North America has declined because of consolidation, demand for finished cooper products, especially copper wire, is growing. CDA’s Weed says the United States has tremendous demand for wire rod.

An added feature of the SDI La Farga location, Weed says, is the number of larger copper consumers in the Fort Wayne area, which will likely provide a strong, nearby market for the new plant’s finished product, Perala says.

A spokesman for the city of New Haven says these manufacturers could benefit from having a nearby producer.

Rea Magnet Wire, which describes itself as the largest producer of magnet wire in North America and China and the second largest in the world, and Exeon Inc., are among the area manufacturers that SDI La Farga may supply with raw material in the future. Exeon Inc. manufactures and sells copper and aluminum electrical wire products that are used in the residential, commercial and industrial markets.

SDI La Farga’s products can be used by suppliers to the building and construction industries as well as by suppliers to the auto industry, including magnet wire that is used for windings in electric motors, Weed says.

However, the construction industry has been in a major correction and may be listless for quite some time to come. But, Weed also says, because the SDI La Farga plant is scheduled to start up by the middle of 2012, a nascent recovery could be starting, which could allow the new project to find ready markets for its finished product.

Weed adds that while copper usage in the auto industry pales in comparison with the use of steel and aluminum, a growing amount of copper is being used in newer vehicles. He estimates the average vehicle has nearly 50 pounds of copper (often in the form of copper wire), with some luxury automobiles containing as much as 70 pounds of copper. The growth in the amount of electronic equipment in an average vehicle is a key reason for the growth in copper demand from the auto sector. With growing interest in electric vehicles, Weed says he sees that average continuing to increase.


For the Right Price
One challenge for copper scrap dealers is figuring out where the market will be in 30, 60 or 90 days. However, with copper scrap prices near the $4-per-pound level, further processing this scrap metal into a finished product could offer the company an advantage. Perala says having a secondary smelter gives SDI the chance to benefit from marketing value-added products rather than from just selling copper scrap.

The state of Indiana, together with a number of state and local agencies, has chipped in with various financial tools to help make the project a reality.

“This new joint venture is the product of a great Indiana company partnering with a world leader to bring a new product to market, and it’s resulting in more opportunities for workers in the northeast region of our state,” says Mitch Roob, Indiana secretary of commerce and CEO of the Indiana Economic Development Corp. (IEDC). 

The Fort Wayne/Allen County Economic Development Alliance, along with the IEDC and local government authorities, worked to offer a wide range of financial incentives to assist the company in building the new secondary copper plant. The IEDC has offered SDI La Farga up to $300,000 in performance-based tax credits and up to $20,000 in training grants based on the company’s job creation plans. Allen County is considering additional incentives at the request of the Fort Wayne/Allen County Economic Development Alliance.

When the project was first announced, Nelson Peters, Allen County commissioner, remarked, “We are excited about the new SDI La Farga facility. The company’s investment in Allen County, with the new facility and job growth, will have a positive economic impact on our community.”  



The author is senior and Internet editor of Recycling Today and can be contacted at dsandoval@gie.net.

August 2011
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