Copper scrap markets started the year by showing renewed strength, though some industry contacts say they fear that strength may be short-lived given that geopolitical forces have had more influence on the market in recent years.
Sources attribute the boost in generation and pricing in part to the uptick in ferrous scrap prices seen in recent months and to renewed interest from overseas buyers.
“Ferrous has been up for three months,” says Randy Goodman with the Roswell, Georgia-based brokerage firm Greenland (America) Inc. “This gives nonferrous a bit of a boost because a lot of the people selling ferrous are selling nonferrous,” he adds.
Of copper scrap markets, Goodman says, “November was horrible, and December was not good. But January seems to be a starting out a little bit better; there seems to be a little more bounce in everyone’s step.”
He says stable copper pricing in the $2.80 range has brought some trading back to that market.
A nonferrous trader for a scrap processing company based in the Midwest says generation is “decent but not great,” adding that buying material was difficult when COMEX pricing dropped to the $2.60 per pound range toward the end of last summer. COMEX copper pricing increased to the $2.80 per pound range initially on the news of the U.S. and China reaching an agreement on Phase One of a trade agreement in December of last year. The trader says that if COMEX pricing stays near the $2.80 level, as it has for the first couple of weeks of January, it could help to bring out additional copper scrap. However, he adds, “Some people are always waiting for the next big move.”
Getting a boost from exports
The Midwest-based trader characterizes supply and demand for copper as being in “pretty good balance,” adding that the export market has helped to pull some No. 1 and No. 2 material out of the U.S. that normally stays within the country.
A trader based in the Southwest agrees with this assessment. His company is exporting copper scrap, particularly in the form of birch/cliff (No. 2 copper wire/No. 2 copper solids and tubing) to countries in Southeast Asia, Asia and Europe, he says. “They are buying at a very healthy spread, which tells you that even with the tariff there is just good demand,” he says of buyers for Chinese consumers in particular.
He says these buyers are buying material with the highest copper content they can in light of the tariffs China is assessing on copper scrap shipments from the U.S.
“If you look at brass, export is really depressed because the tariff is too taxing,” he adds.
While export demand is off compared with the years when China dominated buying, Todd Safran of Safran Metals Inc., a nonferrous scrap processing company based in Chicago, says it has been increasing for the last couple of months. “I won’t say it’s setting the world on fire, but I am seeing it come back to life a little.”
The anticipation of more copper scrap consumption in China this year also is affecting pricing, Goodman says. “I think they are going to use more and more scrap again as they continue to sort out how they are going to categorize it,” he says. “Copper is already flowing in that direction because it can and because the markets make sense. But once they do reclassify it, I think it will be somewhat of a spigot turning back on.”
The Chinese central government has announced that as of the second quarter of this year, high-grade copper and aluminum scrap that meets new purity standards will no longer be classed as waste and can be imported into the country in unlimited amounts, rather than through the quota system that has been in place. (See the sidebar on page 44 for more information.)
David Chiao of Atlanta-based Uni-All Group Ltd. and president of the Brussels-based Bureau of International Recycling (BIR) Nonferrous Metals Division, says the quotas the Chinese government issued for nonferrous metals imports in the first quarter are “surprisingly generous.”
The country permitted an additional 26,566 metric tons of copper scrap and 7,544 metric tons of aluminum scrap to enter China in the first quarter of the year in a second batch of quotas issued in early January. The first batch of quotas for the quarter was announced in late December 2019. In that batch, nearly 271,000 metric tons of high-grade copper scrap and nearly 275,500 metric tons of aluminum scrap quotas were issued.
Chiao adds that “some consumers think it may be a gesture of the U.S.-China trade war standing down or maybe Beijing just beginning to realize the importance of scrap.”
Despite the unexpectedly generous quotas from China, Safran says U.S. scrap processors must “get as creative as possible and forge new relationships” to keep material moving.
“If you have a great product and great relationships, you’re going to be able to find good homes” for material, he says.
“Flows are picking up across the board,” the trader based in the Southwest says of nonferrous scrap. He attributes that to the “excitement” created by the increase in ferrous scrap pricing, which helps to bring nonferrous scrap into the yards.
“There is an increase in quoting as well as flows,” the Southwest-based source says. “It’s changed a little compared with the fourth quarter. Things were relatively slow in generation as well as in consumption.”
Copper has benefited more from the uptick, he says. “Relative to aluminum, copper is in a better position with better balance in the domestic market. Aluminum is still pretty out of balance.”
His company primarily handles postindustrial scrap as well as material from other scrap dealers in the region.
“Demand is slightly better, depending on the commodity,” the trader based in the Midwest says. His company has scrap processing operations throughout that region. “Export is much better,” he says, “and prices have bounced off their lows for most nonferrous commodities.”
However, the Midwest-based trader adds, “Spreads for bare bright No. 2 are wider than based on the available material. I think that will change as consumers get back into the swing of things.”
A copper scrap processor who wants to remain anonymous says that while demand has picked up somewhat, domestic consumers are still measured in terms of their buying and will be for the next few months. “They are not aggressive in their purchasing yet. Demand is still slow in terms of what their needs are for 2020.”
He adds, “Pricing has stabilized, but spreads are still fairly wide in that it is a buyer’s market.”
Despite the recent pickup in the copper scrap sector, Safran says, “Things aren’t getting any easier, but you have to continue to find your niche and ride out this roller coaster.”
Most of the sources contacted for this article say they are “cautiously optimistic” about the outlook for copper scrap in the year ahead.
Regarding the tentative optimism he was feeling in early January, the trader based in the Midwest says it could “go away in the blink of an eye” because of the lack of visibility that characterizes the business today and the geopolitical forces that have been shaping the nonferrous scrap sector, including tariffs and trade wars and the potential for actual war in the Middle East.
“I think [China is] going to use more and more scrap again as they continue to sort out how they are going to categorize it. Copper is already flowing in that direction because it can and because the markets make sense. But once they do reclassify it, I think it will be somewhat of a spigot turning back on.” – Randy Goodman of Greenland (America) Inc.
“I’m still undecided on copper,” the trader in the Southwest says. “It can go either way, and a lot could be driven by geopolitical stuff.”
Safran says he thinks the first quarter of the year will offer more of the same, though he is hoping for increased activity in March and April. “We need to give it a few months for the system to flush itself out,” he says. “I think there will be a better outlook for the next three quarters of the year.
“Things are happening to the positive,” he adds.
“There is a brighter path ahead,” the Southwest-based trader says. “We are not out of it yet, but there is excitement, movement and flow.
“I don’t think we are over the hump,” he continues. “It still is a difficult marketplace, but it is a little better than in the fourth quarter.”