May/June 1992
Despite signs of strengthening prices and increasing demand, copper executives had one issue on their minds at a recent roundtable—the dearth of scrap.
BY SI WAKESBERG
Si Wakesberg is New York bureau chief for Scrap Processing and Recycling.
How tight is the U.S. copper scrap supply? How did this situation come about? And how is it affecting copper scrap consumers? These were the questions that pervaded most presentations at Scrap Processing and Recycling's annual Copper Roundtable, held in February in New York City.
The supply tightness is said to have been a contributing cause of the flurry of trading that lifted the copper price to more than $1 a pound in mid-February. While intensified Chinese buying appeared to be another factor in the higher price trend—particularly for No. 2 copper scrap—roundtable speakers centered their attention on the scarcity of scrap. Effects of the supply tightness, they said, were being felt by all classes of consumers—producers, refiners, ingot manufacturers, and brass mills—as well as exporters.
Examining the Scrap Shortage
William R. Burson, senior vice president of copper operations for Southwire Co. (Carrollton, Ga.), attributed the current lack of U.S. supply to three elements: the slow growth of the economy in 1990 and 1991; the overbuilding in real estate markets, which has stifled new construction to replace older buildings and led to a slowdown in demolition and, thus, a decline in demolition scrap; and greater productivity by U.S. manufacturers, which has resulted in a reduction in scrap generation. Scrap shortages worldwide are also having an effect on the U.S. market, he asserted.
Offering a copper producer's view, Hugh H. Blaber, senior vice president of Noranda Sales Corp. (Toronto), noted a similar trend in the primary copper industry—"a current shortage of smelting capacity"—that will limit refined production in the next three years. He emphasized that problems at smelters "will have an immediate impact on the physical availability of copper."
Traders have been anxiously following production developments in Chile, Zambia, and Zaire, as well as political upheavals in Africa, potential disruptions to the future copper supply. A recent report by the Chilean Copper Corp. indicated that its 1992 output will fall 25,000 metric tons (mt) below 1991 production, Blaber noted. In addition, production from both Zambia and Zaire "trended dramatically down in 1991," he said, "and there's no certainty that this trend will be reversed."
While 1991 copper stocks showed a modest surplus, as London Metal Exchange supplies rose 150,000 mt, overall stocks—including those of producers—"are not high at four weeks' consumption," Blaber declared.
Growing regulatory pressures on the copper industry are also making the going tougher, Burson pointed out, noting that "the costs of compliance will drive some companies out of business." He said that Southwire spent more than $7 million in 1991 on environmental concerns "and will probably spend even more this year."
Ingot Demand Drops Perilously
Back in the 1970s, finished domestic castings demand reached a high of 480,000 tons, said William J. Bullock, president of W.J. Bullock Inc. (Birmingham, Ala.), pointing out that by the early 1980s, demand had fallen to less than 200,000 tons. The situation was even worse last year, he said, calling the 160,000-ton demand "a disaster." At 200,000 tons, he explained, there's still enough business to support the existing ingot-making industry—which encompasses about 15 companies but 160,000 tons is not enough demand he contended. Overall, Bullock expects the 1990s "to average close to 200,000 tons per annum, maybe higher," as U.S. industry recovers and rebuilds, with 1992 perhaps reaching 180,000 tons.
In the future, Bullock foresees dramatic changes in the movement of brass ingots, noting that "as Third World economies improve, U.S. scrap exports will lose position to ingot exports." The countries to watch, include Indonesia, Korea, Taiwan, China, and, later, Central America.
He also asserted that the ingot industry is "going to see greater reliance on No. 1 copper scrap and probably even cathodes for alloying purposes." This change may come at the expense of automotive radiators due to increasing environmental concerns. "New alloys are being developed," he observed, "and old alloys, both low-lead and no-lead, are getting a second look by the castings industry." These alloys will replace today's high-lead, heavily machined alloys, Bullock predicted.
Postive Signs on Copper's Horizon
Despite the recession and new technology that is causing replacement of some copper with plastics, lighter metals, and fiber optics, Burson anticipates a strengthening of the metal markets in 1992. Copper and aluminum showed signs of an uptrend in February, he said, "and we're seeing the first contango market in three years." The strengthening market is reflected in a significant rise in business confidence, an increase in housing starts, and a worldwide need to rebuild the infrastructure, Burson pointed out.
Blaber was also optimistic: "Evidence already exists for economic improvement in the United States, even if slow or gradual." Copper supply and demand are generally expected to be in balance in 1992 and 1993, he stated.
In the international copper market, opportunity exists for increased exports to the Far East, Blaber asserted. He said it "appears today, after a period of relative quiet, that the Chinese are again more active purchasers," becoming "regular buyers of concentrates and finished products, and sporadic buyers of refined copper."
Reducing Scrap Generation
Reduced scrap generation by manufacturers is a growing concern for copper scrap processors and refiners because it represents a supply threat, Burson observed, emphasizing the seriousness of the situation by pointing out that indicated that scrap generated by U.S. manufacturers reportedly has fallen to half the level recorded 20 years ago. "This market will not come back," he explained.
From a wire manufacturer's viewpoint, however, producing less scrap is a cost-effective step in making a quality product, said Chrys Makarushka, director of metals procurement for Omega Wire Inc. (Camden, N.Y.). What is feed, or raw material, to a refiner or brass mill is excess, or waste, to a manufacturer, he stated.
"We look to zero-percent scrap as an objective of quality," he said. The better a company's equipment is and the better the employees are trained the more attention is focused on quality and, thus, the less scrap is produced in the firm's wire operation, Makarushka declared. "We make no capital investments to guarantee the supply of copper scrap, such as a brass mill or a refinery makes," he remarked. "Our capital investments are made in equipment and in training workers to reduce the generation of scrap." •
Despite signs of strengthening prices and increasing demand, copper executives had one issue on their minds at a recent roundtable—the dearth of scrap.