Under the Influence

Things are bright in the copper industry. While business is good today, factors beyond strict supply and demand—some, like theft, that the commodity textbooks do not mention—will have an effect on markets in the longer term.

"Things are moving," says Michael Friedman, president of Scrap and Waste LLC, Louisville, Ky. Friedman is also head of the Institute of Scrap Recycling Industries Inc. (ISRI), Washington, copper committee.

"Prices are up," notes Wayne Goldstan, president of Goldstan Trading Inc., Reading, Pa. In mid-February, copper was trading in the $3.50 per pound range. By the end of the month, the spot price for copper ranged from $3.70 to $3.75 per pound.

That is a change from mid-2006, which saw the start of a decline of about 40 percent in copper prices during the following nine months. While copper is flowing, several operations say they would like to see more copper in the market.

"Flow is fair," says Toby Shine, president of wire chopping company Shine Bros. Corp., Spencer, Iowa. "It’s not the best I’ve ever seen, but it is good," he adds.

Toby Shine says he thinks the current price is "an excellent number" for the market. He adds that he expects to see lows that will be much higher than what the market has been used to seeing in recent years.

"I think it’s going to be a pretty good year," Goldstan says, noting that nobody can predict the impact of push and pull factors on the market.

Clean, processed copper chops remain a desirable secondary commodity, and wire choppers are doing fairly well in the market.

Friedman handles specialty materials, not the usual run of chopped wire or bare bright. He says material seems to come in to his operation regularly. "There is no rhyme or reason why you stumble on another load, but it keeps coming," he says.

In Lancaster, N.Y., Brian Shine, CEO of Manitoba Corp. says that flow could be a bit better. "It’s not as good as we’d like," he says. Brian Shine, who is not related to Toby Shine, says it is not a factor of price, but of availability. "There is a limited amount of scrap available."

Part of the limited supply can be attributed to the cold winter weather in the North. Utilities cut back on their regular maintenance and, even in a normal economy, housing work in the North slows down. Still, Brian Shine is a bit puzzled. "Normally, high markets bring out metal," he says. "Metal is flowing. But it is tight."

The question on many minds is what is happening on a macro level with copper, as a whole.

"Substitution is always an underlying problem for copper," Toby Shine says.

One of the concerns in the market is the changing mix in the traditional copper scrap supplying markets. Auto radiators, for instance, used to yield a high copper fraction. Now, modern radiators are built of aluminum.

Old refrigerators always had copper tubing or copper running to the ice maker. In many cases, that has been replaced by other materials.

The sluggish housing market is certainly not bullish for the copper market.

Longer term, Goldstan says he sees laws that have been introduced in a number of cities that allow plastics to replace copper in new and replacement construction as a contributing factor.

"It depends on the ordinances in the city where you live, but more plastics are being introduced," Goldstan says. This is having both a short-term and a possible long-term impact on copper in the recycling markets.

Years ago, building codes in most of the older cities required all structures to be grounded by copper. Today, much of that copper is being removed and sent into the recycling stream. However, that recycled copper is not coming back to the housing market as new pipe. Instead, an increasing number of cities allow the much cheaper plastics as a replacement for copper.

"If you pull out all of the old copper, and the home is not grounded, you will get an arc," Goldstan says. "A lot of older cities demanded copper, which is pushing the market a bit." Without that push, some of the domestic demand for copper could fall off.

Brian Shine was disturbed when he recently visited his daughter’s brand new home in Charlotte, N.C. "I was dismayed to go into the basement and see there was absolutely no copper plumbing in her house," he recounts. "It’s a bit of an issue."

In fact, tube mills are buying limited quantities of material, given that people are not putting as much copper into their homes, and the construction market isn’t showing any signs of a quick turnaround.

"Thankfully, they are still using copper for the wiring," Brian Shine says.

Friedman says the changing mix is not news, but a continuing reality that the market must handle. Higher prices will push manufacturers to look for substitutes more often.

"As prices are driven up, it’s a sad fact of life that theft is up," says Goldstan. He notes that as the public reads articles about the value of copper increasing, a certain segment of the population will be predisposed to steal the material if the opportunity presents itself.

Targets include everything from copper roofs to copper downspouts, from lightening rods to wire and cable.

Friedman says the volume of copper gutters and downspouts that are being stolen amazes him.

(Copper is not the only metal thieves are targeting. Catalytic converters are also being stolen for their platinum and palladium content. A few seconds work with a hacksaw can strip a converter worth $100. Thieves favor SUVs, large pickups and other high-standing vehicles that are easy to slip underneath and that have large converters. That makes the job less of hassle and provides a bigger payback.)

Citizens are outraged when they face the thousands of dollars it costs to put up new rain gutters or even copper roofing…if, that is, they replace copper with copper. So, city authorities are doing something about it.

"More townships and cities are putting in ordinances that make it harder to buy copper," Goldstan continues. He is referring to the requirement in many areas that recyclers be able to track the ownership of copper and other valuable metal commodities to avoid providing a market for stolen goods.

"It’s sad that is the way the world is," Goldstan says.

Other world factors—mainly currency differences—play a role. Friedman says he likes to watch the ratio between the U.S. dollar and the euro. A couple of years ago, the euro could be purchased for a penny or two below the dollar. Now, that same euro will cost more than $1.50.

"Keep an eye on the euro. It tells what everyone else is thinking about the U.S. dollar," Friedman says.

It is not just the euro that is booming against the dollar. The Canadian dollar continues to be a real powerhouse against the U.S. dollar and is very strong against most other world currencies.

The Canadian dollar has gotten much stronger in the past 12 months. The two dollar currencies are fluctuating with one another within a penny of par.

Toby Shine says he expects prices of copper and brass to continue to fluctuate. "Tell me how long the dollar will stay weak, and I’ll tell you what prices will do," he says. Like others, he says that the weak dollar will help keep prices up. He adds that, as a long-time participant in the market, he thinks that prices at half what they are today still would look pretty good.

Meantime, the U.S. economy continues to reel as housing starts slump and the auto market is in the doldrums.

Another place Friedman says dealers must be careful is in tracking their costs. A trailer load of copper used to be worth about $40,000. Now, it might be worth $140,000. "Dealers have to figure in the cost of money" when procuring materials, he says.

While most of Manitoba Corp.’s copper is moved in North America, the company does ship some lower-grade material to Asia. However, scrap contracts with Canada have to be paid in Canadian funds. Not only does the company lose on the dollar exchange, but it also has to pay the commission on the purchase of Canadian dollars.

The relatively cheap dollar has a bearing on prices, Brian Shine says, but because commodities like copper and brass are traded on open, global exchanges, the price worldwide should take into account currency differences. "It’s not like a manufactured product," he points out.

Neither copper nor any other metal trades in a vacuum. Brass markets continue to sparkle, and the secondary market remains competitive.

"Brass is moving well," Toby Shine says. Both the domestic and the international markets look good. "Domestic brass mills always need brass," he says.

Toby Shine says he expects the Chinese market to continue to be a big factor, even after the conclusion of the Olympic Games. The upcoming Olympics have been given credit for much of the building boom in China, as the Chinese prepare to look good on the world stage.

"Even after the Olympics, they will still have that huge population to keep busy," Toby Shine says. "India will be a factor, too," he adds.

Manitoba has drifted away from the brass market, as fewer domestic brass manufacturers remain in business. The company does have a plant in St. Louis that processes spent ammunition from military and government exercises.

"Brass is reasonably readily available," Brian Shine says.

Meanwhile, other commodity prices are offering surprisingly different impacts on the market. The price of zinc, for example (about $2,340) has dipped under aluminum (running in the $2,735 area). Lead—bland, old lead—is more than $3,000 per ton.

Given the choice of picking up a tossed aluminum can for scrap or a broken lead wheel weight, most people would probably take the can. However, lead wheel weights were trading for 61 cents per pound as of mid-February. And, the wheel weight probably weighs three times more than the can.

Closer to copper, the value of electric motors has jumped from less than a dime not that long ago to more than 30 cents per pound today. Across the board, things are strong.

The author is a contributing editor to Recycling Today and can be reached at curt@curtharler.com.