March/April 1989
Just because solid demand and a strong market characterized 1988, copper executives aren’t resting on their laurels. Their reactions to recent market events and their strategies for the future were discussed at this recent ISRI-sponsored event.
By Si Wakesberg
Si Wakesberg is a New York City-based consultant for the Institute of Scrap Recycling Industries, Washington, D.C.
Admitting that there was good business volume and exceptional demand for their products in 1988, primary and secondary copper executives addressing the February Copper Roundtable in New York, sponsored by the Institute of Scrap Recycling Industries (ISRI), shone the searchlight on what may happen when copper returns to more normal price levels. In doing so, they highlighted some of their own companies' efforts to reduce costs, boost productivity, and meet the challenges faced by their segment of the industry. (During the week of the roundtable, for example, COMEX copper spot prices tumbled more than 10 cents a pound.)
One thing was clear from all reports: today's copper business, for the producer, the brass mill, the wire mill, the refiner, the ingot manufacturer, and the scrap merchant, is highly competitive.
A Copper Producer's Program
How one copper producer, whose costs were "significantly higher" than world copper prices in the mid-1980s, met the competitive challenge was explained by Jerry Rich, marketing manager, Magma Copper Company, San Manuel, Arizona. In addition to the price factor, Magma's aging plant and increasing environmental regulations posed even greater threats. Rich outlined Magma's $253 million expansion and modernization program, which lowered unit operating costs, reduced atmospheric emissions, and raised the smelter's capacity to 3,000 tons of concentrates per day. "Copper production will increase to approximately 475 million pounds in 1991," Rich said. "Through the year 2006, Magma will produce 6.5 billion pounds of copper. ... By 1991, at least 34 percent of our cathode copper will be produced from the lower-cost leaching of oxide and sulfide ores. …" When all this is in place (by 1990), Rich said, Magma will have reduced operating costs to the mid-50-cents-a-pound range.
Brass Mills See Good Demand
The continuing good demand for brass mill strip (up 13 percent in the past four years) has been excellent news for brass mills, said David F Lang, director of metals management, Olin Corp., East Alton, Illinois. But accompanying this demand has been a rise in production of about 34 percent, he pointed out. This (and the effect of the weaker dollar) has taken its toll on imports, which have declined during this period. It has even opened up the export market for American shippers, Lang added. He emphasized that there's a need to control costs by reducing overhead and maintaining minimum inventories in order to be competitive in the world market.
Automotive demand, he noted, has been strong, electrical segments have grown, and housing applications have held steady, while the electronics market has wobbled a bit. Lang indicated that 1989 is expected to remain strong in the first half, and probably will remain strong throughout the year. Brass mills face not only the challenge of high copper prices, he noted, but also the escalating prices of zinc and nickel. "But the factor that is most frustrating is the market backwardation," he said.
Lang pointed out that his company, which has the ability to cast 800 million to 900 million pounds a year with 60-70 percent scrap, needs good quality scrap. "Because our customers' specifications have become tougher and tougher, our inspection of incoming scrap must be tougher," he stated.
Tube Mills' Price Factors
What's a normal price? Louis T. Zawislak, vice president-commercial, Halstead Metal Products, Greensboro, North Carolina, said that, from a tube mill's point of view, "a competitive price for water tube is 80-90 cents a pound of copper." Commercial tube might need a somewhat higher price threshold because its competing raw material is aluminum, Zawislak noted. Today's copper price, he said, renews the threat of plastic substitution in plumbing tube.
Discussing terminal market prices, Zawislak said selling prices of $1.50 a pound and production costs of 40 to 60 cents a pound "equate to pornographic profits." He added that most refined copper suppliers have exercised restraint in pricing their products in relation to terminal market prices. He indicated that scrap suppliers also have been reasonable, noting that "discounts have widened as terminal markets have risen and material has been fairly readily available."
Zawislak stated that there seems to be a lack of information on scrap flow and said he would like to see more statistics in that area. In a question-and-answer period he was asked what effect such statistics, were they available, would have, and admitted that without the actual data he could not say.
He said he senses a change coming in the way his company purchases scrap: "Those who respond to our needs, who are flexible in solving our supply problems, will be our preferred suppliers in years to come."
Demand for Building Wire Up
Demand for building wire, which represents a major segment of copper consumption, has continued to increase in each of the past eight years, including 1988, said James C. Richards, president of Southwire Co., Carrollton, Georgia. He foresees continued growth in demand for building wire in 1989 and 1990 and a leveling of demand during the 1991-1993 period. Noting that "a billion pounds of building wire is a far cry from where we were in 1983," Richards discussed Southwire's multimillion dollar investment program, which he said will make Southwire's refinery 11 completely independent of outside manufacturing."
The company continues its commitment to secondary material, Richards added, which will continue to be a major part of the feed used. Recycling not only helps clean the environment, he emphasized, but makes good sense economically. He urged cooperation in putting this message of recycling before legislators and the public.
Changing Roles of Merchants and Processors
The changing industry and market conditions facing merchants and copper scrap processors were delineated by Robert A. Stein, manager-nonferrous metals division, Louis Padnos Iron & Metal Co., Holland, Michigan. While business in the past two years has been good, Stein said it also had become increasingly competitive. Like other speakers at the roundtable, he urged a "realistic assessment of our business, keeping in mind that we will once again see 60- or 70-cent copper prices ... and feel the pinch of decreasing volumes and margins."
Stein traced the closing of scrap trading departments in large merchant houses; the breakdown of old, historic companies; and the proliferation of small, sometimes one-man, firms. As for wholesale processors, their role also has changed. Today, he pointed out, more consumer representatives are bypassing the wholesale processor and are doing business with smaller processors. This, he indicated, is changing the structure of the entire scrap industry.
Stein said that although there is a historic correlation between scrap and COMEX, "in these times of oversupply of scrap and shortages of refined copper, the spreads have widened to a point that-from our standpoint-the viability of COMEX and the protection it is said to offer are indeed questionable." He said that COMEX should be used as a reference point except when hedging is absolutely necessary.
Stein concluded that he is optimistic about the future, calling those in the scrap trade "a group of survivors whose ingenuity and inventiveness has, on the whole, proved successful."
Ingot Manufacturers Unite to Meet Challenges
The influx of foreign castings and the restrictive air emission policies of the U.S. Government are injurious to the foundry industry, as well as to brass and bronze ingot manufacturers, according to Allen B. Silber, vice president of M. Kamenske & Co., Nashua, New Hampshire, and president of the recently established Brass and Bronze Ingot Manufacturers. Based on data for the first 10 months of 1988, Silber said, there will be a "record importation of valves and pipe fittings in 1988." During this period, he added, domestic ingot shipments have remained fairly static, at around 200,000 tons. He termed the continuous climb in imports "alarming" and acknowledged a significant concern that they "do not meet the same safety standards as U.S. castings."
The other challenge comes from the amount of lead allowed by the government in the foundry atmosphere--50 micrograms per cubic meter--which, Silber said, would be devastating for the foundry and brass and bronze ingot industries. An impact on these two industries also would affect the scrap industry since "there would be a drastically smaller market for nonferrous scrap." Silber sees the emergence of a unified brass and bronze ingot industry as a good omen for future cooperation. •