Supplement -- Copper Proves Its Resiliency

Although copper prices continue to follow a roller coaster-like path, business remains steady for most segments of the industry. Prices may be lower than some producers would like at times, but copper markets continue to shift and provide additional business opportunities.

"Business is good," says Michael Friedman, president of Friedman Metals Brokerage Co., York, Pa. "It’s not a free for all like it has been in the past – it’s just good, profitable business."

Friedman says he sees the copper industry as stable and does not foresee any immediate changes in the future. "You may have some minor spikes up and some minor dips down, but I can’t see anything changing anytime soon," he says.

And those price spikes up came sooner rather than later. Soon after Friedman made comments about how steady and "boring" the market was, copper markets took a surge forward July 1 and leapt to a COMEX session high of 75.70 cents per pound, before settling at 75.15 cents per pound an hour before close. On the same day, London Metals Exchange prices soared to 74.72 ($1,644 per metric ton) at the close of the second session, up $4.93 ($108.50 per metric ton) from the morning.

The improvement of the Asian economy may fuel the further improvement of those markets. "I think that the bright spots are that Asia has bottomed out and the Asian economies are exhibiting signs of a recovery," says Thomas McNamara, ana-lyst for CIBC Oppenheimer, New York. "It doesn’t appear to be getting any worse."

Marc Schupan, CEO of Schupan & Sons, Kalamazoo, Mich., also says improvement could be on the horizon for copper markets. "Basically we’ve seen a lot of strength in the last week or two (of June) and certainly all the producers wish for better numbers," he says. "But, like any other commodity, if it goes low enough long enough like it has, supply gets cut and eventually prices will improve"

Schupan proved to be prophetic, making his remarks just days before the July copper price surge—a rise in prices that was attributed to traders’ positive response to primary copper cutbacks announced by producers.

STILL WIRED

While copper pricing can remain unpredictable and somewhat erratic at times, hopes for a strong ongoing market are pinned to steady demand for copper and brass.

As technology continues to change, the uses and demands for copper change as well. The use of fiber-optics has had a slightly negative impact on the industry, but at the same time the overall boom in the telecommunications industry spurs a new demand for copper, says Daniel Edelstein, copper commodity specialist for the United States Geological Survey, Reston, Va. "Fiber-optics has certainly eaten into the copper segment of the telecommunications market, and without that there would be a greater demand for copper, but we haven’t seen a big drop off," he says.

Bill Black, vice president of electrical and electronic markets, Copper Development Association, New York, says fiber-optics is not having quite the impact some feared it would have on the copper industry. "Fiber-optics is coming in and that is having some impact, but the reason [the use of copper wiring] has been steady is there has been a lot of growth in the market. That growth has more than balanced the loss in terms of consolidation of wires."

Increases in interoffice communication have also spurred the growth of copper use. "Superimposed on that is the communications in buildings, particularly in the last five years," he says. "There has been a tremendous growth in office networking and a tremendous growth in residential networking. It more than balances the loss in the outside plant."

Larry Mallin, secretary/ treasurer of Mallin Brothers Co. Inc., Kansas City, Mo., says the use of fiber-optics in telecommunications isn’t too much of a threat to his business or the industry. "There was a time when I was deeply concerned, but I think that there will be hard wired things—and more of them."

Friedman as well says he does not see fiber-optics as a threat to the copper industry. "They haven’t found a way of substituting copper in TV sets," he says. "Even the flat screen TVs have copper in them. Copper is with us."

Schupan says he sees fiber-optics taking some business away from the copper industry, but there are still many areas that will continue to consume copper. "I certainly think fiber-optics will replace and has replaced copper in a number of areas," he says. "But on the other hand it is a large world and very underdeveloped in many areas. Schupan says copper will continue to be consumed in other countries as they become more online with technology and people begin to demand more goods.

While fiber-optics reduces the demand for copper in just one segment, at the same time new building structures—whether residential or commercial—are demanding more electrification, he says, which increases demand. The average wiring per square foot of buildings, both residential and commercial, has increased because of the greater use of personal computers, televisions and other electronic equipment.

Electrical wiring creates the greatest demand for the use of copper, says Emil Milker, manager of market research for the Copper Development Association. "Using 1998 numbers, the number one market for copper continues to be building wiring," he says. "That is by far copper’s largest market. The second is the plumbing and heating market."

OTHER MARKETS STEADY

Housing and new construction have spurred much of the need for copper, and both markets continue to produce a reliable amount of demand. Black says he see the industrial side of usage as stable. "It’s pretty much level—a slight uptick, but not much. In terms of percentages, that market’s percentage has slipped. The rest of the industry has grown more than they [industrial applications] have."

Transportation is one more area that has shown a change. "That has shown a shift, and most of that is in passenger cars," says Black, who notes "a big shift in the last decade to the electric side." Newer automobiles have changed from having radiators made of about half copper to newer, smaller units with more aluminum. "Now it’s less than a tenth of the copper used in a car," Black says of radiators. "But, the increased popularity of Sports Utility Vehicles has been a positive change for the copper industry. When the vehicles were first introduced they were heavily wired, increasing the use of copper."

The construction industry also continues to provide copper producers with business opportunities. Ansel Aberly, a nonferrous scrap industry veteran with SLC Recycling, Warren, Mich., notes that housing starts in the U.S. have been stable or growing from year to year in the 1990s.

Aberly says there is a delicate balance between supply and demand of copper. While there are strong demands for copper in some areas, if those areas are supplied with copper too quickly it could deplete copper reserves. "There is balance, but if you put a light bulb in every house in China there would be no reserves of copper. But in the future, the so-called third world countries will be large consumers of copper."

Countries outside of the United States that are less developed than the U.S. could help create numerous business opportunities for North American companies.

Copper consumption in the U.S. in most end-use markets has followed a rollercoaster-like path, but overall usage is up from what it was 10 years ago in the markets of telecommunications wire, building wire and building construction uses. Some end markets dipped in 1992, but rose again in 1997. In 1987, telecommunications cable was at 160 million pounds, and in 1992, 188 million pounds. In 1997, consumption was at a high of 330 million pounds. Building wire follows a somewhat similar path with usage in 1997— at 1,390 million pounds—far above what it was in 1987—at 1,161 million pounds. Building construction is also up from what it was in 1987—3,047 million pounds—to 3,478 million pounds in 1997, according to the Copper Development Association.

WHAT THE FUTURE HOLDS

As increases in technology continue to occur, new uses and potentials for copper also materialize. Aberly says he is constantly amazed at the new possibilities for copper.

"Every time I say we have reached saturation someone comes up with a new product," he says. "I am constantly flabbergasted with the resilience of the world economy. It has tremendous resilience. The rate of change keeps getting faster and faster . . . it’s enormous."

Some of these new uses or alternative markets for copper include within the computer industry, where network connectivity and Internet access has spurred equipment demand. "People are looking for faster connections and that is an entire new market for the industry," Milker says. "It’s a tremendous potential for the copper industry. That’s a market growing at about 20% in the last five years."

Edelstein agrees that the increased popularity of computers has spurred business in the copper industry. "Every home now has at least one computer, practically, so the growth in electronics has spurred an increase in the demand for wire," he says.

While it may not be a new use for copper, there has been an increase in the use of copper in Europe and Asia because more people there are installing air conditioners. The two areas, along with many third world countries, are just beginning to discover America’s fondness for air conditioning, which opens up a virtually untapped market for copper tubing businesses.

QUESTIONING THE CORRELATION

The current oversupply of primary copper does have an effect on the market for secondary scrap copper, Mallin says, but not as much as one would think. "Of course it has an effect, but I just don’t think that traditionally the value of primary copper is as critical to the price of scrap copper as people believe it is," he says.

Thomas McNamara, an analyst for CIBC Oppenheimer, agrees. "Yes, it does have an effect in that the availability of so much primary copper has pushed prices down so low that any holders of secondary have not been willing to sell," he says. "That could eventually translate into higher pricing. It creates a circular aspect, as a lot of primary supply pushes prices down so that scrap supply declines."

For now, the industry will have to continue to ride out the roller coaster tendencies of the market until things begin to settle down. But, when that will be no one knows. Aberly, who has bought and sold scrap copper for years, says the industry will have to wait and see what the future holds. "It is a very volatile market … what this indicates in terms of the future is yet to be played out."

The author is assistant editor of Recycling Today.