A lack of demand and too much supply

Bearish market conditions continue in copper scrap and aluminum scrap markets, with Chinese demand and output affecting both sectors.

China, said to be the largest buyer of copper scrap, continues to exhibit lackluster demand for this material.

Additionally, the country’s increased output and exports of aluminum products are dampening aluminum scrap demand in the U.S.

Melvin Lipsitz, president of M. Lipsitz & Co., based in Waco, Texas, says China’s current economic difficulties seem to be weighing heavily on the copper sector.

Lipsitz describes the situation in China as a significant economics and banking issue “that will take a great deal of time to work its way out.” In addition, he says the strength of the U.S. dollar is having an effect on China’s interest in U.S. scrap.

Meanwhile, statistics continue to portray China’s slumping demand for imported copper and brass scrap. A late June 2015 column by Andy Home of Reuters says imports of primary copper concentrates are “booming” in China, while the country’s copper scrap imports have fallen from 4.9 million metric tons in 2012 to 3.9 million metric tons in 2014. In the first five months of 2015, Home says, copper scrap imports were down 8 percent compared with the first five months of 2014. Furthermore, a July 15 Bloomberg Business report indicates that new supply growth in copper mining capacity around the world will increase for the next few years.

If the current price of copper is to be taken as an indication of the health of the scrap markets, it portrays a negative picture. The London Metal Exchange (LME) copper price fell to $5,240 per metric ton in July, the lowest level in six years.

One U.S. recycling company executive based in the Midwest says copper scrap generation has been relatively steady over the last several months, with a slight increase more recently.
 

He describes demand for copper scrap as flat, adding that this condition has existed for several months. “I’d say supply and demand are pretty well balanced, and spreads are pretty good and pretty steady.”

Export demand also is relatively stable, he says. “It has been enough to buy up the available units,” he says.

In the aluminum sector, David Wallace, senior vice president of Huron Valley Steel Corp., Trenton, Michigan, says aluminum prices overall are depressed, reflecting a glut of prime aluminum available and LME warehouse reforms leading to shorter wait times for aluminum.

Wallace says, “If the Chinese economy continues to contract, global demand for scrap will decrease, leading to increased availability and declining prices. But the overproduction of both steel and aluminum flooding the world markets artificially inflates supply without a correlating increase in demand. It will take a decrease in Chinese production to ultimately balance supply and demand again and restore margins.”

A recycler based in the Midwest says domestic demand for mill-grade aluminum scrap is not strong. “I keep hearing about how secondary consumers have plenty and don’t seem to need to push prices, except for the last couple of weeks,” he says.