January/February 1990
Copper scrap market watchers sometimes must feel they’re dealing with one of those intricate 1,000-piece puzzles. The copper scrap puzzle contains a colorful mix of consumers, a diverse blend of scrap processors and traders, and a variety of terms to describe the source and characteristics of the scrap. This amalgamation of pieces, plus ever-changing demands, make forecasting the copper market’s future a challenging task.
By Patricia T. Foley
Patricia T. Foley, CRU Consultants, Summit, New Jersey, manages North American consulting operations for Commodities Research Unit Ltd., London.
The copper scrap puzzle has many pieces-pieces that change in appearance as the market changes. To get a picture of future demand for copper scrap, it is necessary to look at how each piece fits into the puzzle-how scrap usage is influenced in each stage of the copper production process.
In the United States, just over half of the copper-based scrap recycled each year is processed through smelters, refineries, and ingot makers. Around 40 percent of the purchased scrap is used directly by brass and wire rod mills. The remaining purchased scrap goes to foundries, chemical plants, and other manufacturers. The type of scrap processed varies by class of consumer.
Smelter Demand Influenced by Price
Of the 12 smelters in the United States, eight can be considered primary smelters and four are secondary plants. The primary smelters process copper concentrate, usually from integrated mining operations. Secondary smelters process copper scrap. A few primary smelters use a small amount of No. 1 or No. 2 copper scrap along with some residues, but this represents less than 10 percent of their feed and less than 5 percent of the scrap used by smelters and refineries.
Secondary smelters treat a wide variety of materials ranging from very low-grade scrap (with a copper content of less than 15 percent), sludges, and residues to No. 2 scrap, radiators, and red brasses. Almost all of the low-grade scrap and copper radiators recycled in the United States, and a large portion of other old scrap, goes to the secondary smelters. Of the four secondary smelters in the United States, two--AT&T Nassau Metals Corp. and Southwire Co.--have nearby refineries and rod mills. Franklin Smelting & Refining Corp. and Chemetco have their blister processed by others.
Business at secondary smelters is influenced by copper prices, since high prices make it economical to recover copper from very low-grade material. Precious metal prices affect copper recovery at secondary smelters that process electronic scrap with a high gold, silver, or platinum content.
Copper prices are expected to moderate over the next few years, and this is likely to lead to a decline in the amount of scrap available to secondary smelters.
From a longer-term perspective, changes in copper usage patterns will affect conditions in the scrap business. For example, close to half of the new cars produced in the United States now have aluminum rather dm copper/brass radiators, and when these cars reach the end of their useful lives, fewer copper radiators will be available to secondary smelters. The decline in copper usage in a car's cooling system has been more than offset by the growing use of copper wire and copper alloy strip in its electrical system. The copper used in small parts, such as terminals and connectors, may not be recycled at all.
Will More Blister Mean Less Scrap?
Six of the 12 major copper refineries in the United States can be citified as secondary plants. These include the two electrolytic refineries adjacent to the AT&T Nassau and Southwire secondary smelters and Cerro Copper Products Co.'s electrolytic and fire refinery. They also include the Cyprus Warrenton Refining Co., Inc., Essex Group, and Reading Tube fire refineries, which process a large amount of scrap. Most of the primary refineries are associated with integrated mining operations and obtain their blister or anodes from company-owned smelters. A few of the primary electrolytic refineries melt No. 2 scrap in fire refining furnaces before anode casting, and some also use No. I scrap when casting anodes or shapes.
Most of the secondary refineries use No. 1, No. 2, and light copper scrap as well as blister copper from both primary and secondary smelters. Five of the six secondaries are integrated downstream into either copper wire rod or tube. Cyprus Warrenton Refining sells electrolytic-grade ingots and wire bars, primarily to brass mills.
The amount of scrap processed by secondary refineries depends on conditions in both the scrap and blister markets. When copper prices are high, slightly more No. 2 and light copper scrap is available, but this material is usually recycled regardless of price. When blister supplies are tight, many secondary and some primary refineries increase their use of scrap. However, metallurgical requirements limit the amount of scrap that can be used in some operations.
Although copper prices are expected to moderate over the next few years, the main factor influencing scrap demand at refineries will be the increased availability of blister once Mitsubishi's smelter at Texas City, Texas, is on stream. Production is scheduled to begin in 1992. Another consideration in the U.S. market is the availability of blister from Mexico. Blister exports from the La Caridad smelter should increase as the plant's production level rises. Once its current problems are settled a smelter expansion at Cananea cannot be ruled out.
Limited Scrap Use by Wire Rod Mills
Most wire rod mills use very little scrap as direct feed. Advances in continuous-cast rod technology that allow better control throughout the process, together with improvements in scrap sorting and wire chopping operations, have enabled some wire rod producers to use very clean, high-grade (No. 1) scrap in casting rod for heavy-gauge products and less demanding applications (i.e., building wire as opposed to magnet and electronic wire). However, nearly 80 percent of U.S. wire rod capacity is owned by companies with copper refineries, and scrap makes up considerably less than 5 percent of the feed for wire rod mills.
Brass Mills Main Consumers of No. 1
Brass mills are the main consumers of No. 1 copper scrap, taking more than 50 percent of the total. In addition, brass mills account for more than 75 percent of the copper alloy scrap consumed in the United States. Within the brass mill sector, No. 1 copper scrap is sold in two markets, loosely referred to as the tube mill market and the brass mill market. Tube mills purchase burnt wire and tubing. Brass mills (which include sheet and strip mills and copper rod and bar producers) purchase bare-bright wire and choppings. Companies in the brass mill market generally have tighter quality requirements and produce higher-value-added items, so they often are willing to pay slightly more for bare-bright scrap than tube mills pay for burnt wire and tube. However, tube mills occasionally buy bare-bright metal to sweeten their feed and some brass mills may take burnt wire or tube. Generally, about one-third of the No. 1 scrap purchased by brass and tube mills is bare-bright wire and choppings and two-thirds is burnt wire and tube.
Bare-bright copper scrap and bare-bright choppings are the only types of scrap that compete directly with refined copper, though only in certain applications. Bare bright refers to the physical condition of the scrap: It is usually new scrap from manufacturing operations and has a copper content of 99.8 to 99.9 percent. Bare-bright choppings are generated from wire mill scrap from which the insulation has been removed. Scrap, including bare-bright wire and choppings, is more difficult to handle than refined copper, so it sells at a discount to primary metal.
Although bare-bright scrap competes to some extent with cathode, the output of electrolytic refining, it could not replace primary copper, as all mills need a minimum amount of refined material to ensure quality. Some mills may buy more than the minimum required amount of cathode if the price of refined copper is low relative to the price and handling costs associated with No. 1 scrap.
Uncertainty about the impurity level of the scrap being delivered to a brass mill and the sampling requirements are the major handling problems associated with No. 1 scrap, and can add to its cost. Some mills minimize these problems by buying only from known and trusted scrap processors. Other mills buy No. 1 scrap from a number of processors only if the discount from refined material Ls large enough to pay for the sampling necessary to verify the quality.
Brass mills could use more bare-bright scrap m place of cathode if scrap processors could guarantee a minimum impurity content, thus lowering handling costs for the brass mills. However, the testing equipment scrap processors would have to install in order to guarantee minimum impurity levels is quite expensive, and higher margins would be needed to justify the expenditure.
Brass mills also buy copper alloy scrap such as yellow brass (C270, approximately 65-percent copper and 35-percent zinc), cartridge brass (C260, approximately 70-percent copper and 30-percent zinc), soft red brass, phosphor bronze, copper-nickel alloys, and other types. Alloy scrap accounts for about one-third of the purchased scrap consumed in the United States. Tube mills generally do not take copper alloy scrap, but at most alloy rod mills 95 percent of the raw material input is scrap.
Scrap purchases by brass mills are based primarily on activity levels at the mills and the relative price of cathode and No. 1 scrap, rather than on overall copper prices. When business conditions are strong for brass mills and their customers, brass mills have access to large volumes of return scrap. Imports of brass mill products by U.S. manufacturers also increase scrap availability. However, when markets are slow or imports decline, less domestic scrap is available and mills may increase their cathode purchases.
In spite of a general increase in the quality of No. 1 scrap during recent years, scrap is expected to lose market share to cathode over the next five years or so. In some product categories, there is a move to higher-value-added products that require cathode as feed rather than scrap. For example, the move by U.S. companies to produce inner-grooved tube in place of smooth-bore commercial tube for air conditioning applications means that some tube mills will purchase more high-grade cathode and less scrap. The increasing use of high-copper specialty alloys in electrical and electronic connectors, and more rapid growth in automotive electrical applications than in nonelectrical markets, also favor refined copper at the expense of scrap. Increased availability of domestic cathode through refinery expansions and solvent-extraction/electrowinning plants could lower the market premium and squeeze the spread between cathode and No. 1 scrap prices, further reinforcing the competitive position of primary copper.
Ingot-Maker, Foundry Demand Shrinking
Scrap consumption by ingot makers and foundries has declined in recent years owing to an overall contraction of those industries. Although scrap represents more than 90 percent of the raw material requirements for these businesses, ingot makers, foundries, chemical plants, and other manufacturers consume only 18 percent of the purchased copper-based scrap in the United States. Over the next five years or so, a further decline in this sector is likely as plumbers' brass goods are increasingly machined from rod rather than cast. In addition, increasingly stringent environmental regulations will make it more difficult for small firms to operate, especially those firms that cast leaded-brass alloys.
Over the next five years, the copper scrap puzzle will undergo changes as most copper scrap suppliers face increasing competition from primary copper producers. The domestic primary copper industry undertook a major restructuring in the early and mid-1980s that caused an overall contraction in production capacity. However, the survivors of this shakeout are "lean and mean" and are now poised to expand their operations. Increased domestic production of blister and cathode will put pressure on the No. 1 and No. 2 scrap markets. A move to increasingly stringent specifications for high-value-added brass mill products will favor scrap processors able to guarantee consistently clean, high-quality bare-bright wire and choppings.
Puzzling Language Explained
The copper scrap market puzzle is complicated. Not only are there thousands of buyers and sellers dealing in hundreds of types and grades of scrap, but the business has a language all its own and everyone seems to speak a different dialect. In talking scrap, processors use words such as Berry, Candy, and Night. Copper scrap traders talk about No. 1, No. 2, light, heavy, and mixed. Mills refer to runaround, return, and purchased material. The U.S. Bureau of Mines publishes statistics on new and old scrap; the World Bureau of Metal Statistics includes categories for secondary refined production and direct-use scrap.
Most of the terminology used in the scrap business defines the origin, use, composition, or grade of the scrap.
Scrap is generated at all copper processing operations. At smelters, refineries, rod and brass mills, ingot makers, and foundries, this home or runaround scrap is fed back into a melting furnace.
Scrap is also generated at manufacturing plants in operations such as stamping, turning, and drawing. This material is referred to as prompt industrial scrap, and it is either returned to the mill from which it was purchased--in which case it is called return scrap--or sold. The scrap processor or trader that buys this scrap will sort and grade it and then may sell it to domestic brass mills, ingot makers, foundries, or secondary smelters or may export it. Generally, the term purchased scrap refers to both return scrap and other scrap obtained from processors or traders.
Home and prompt industrial scrap are also referred to as new scrap, since they have not yet been “used” by a consumer. Material that is returned to the system after being used is referred to as postuser or old scrap. Generally, the old scrap recovered in any year is considered by the Bureau of Mines a net addition to copper supply, whereas new scrap is not.
Scrap entering the copper consumption system is also classified either as secondary refined production or as direct-use scrap. Scrap returned to smelters and refiners is called secondary refined production. Scrap that is melted but not rerefined by wire rod and brass mills, ingot makers, foundries, or others is referred to as direct-use scrap.
The terminology No. 1, No. 2, and No. 3 scrap is widely used in the U.S. market, but these grades represent generally accepted practice rather than strict specifications. No. 1 scrap almost always has a copper content of 99 percent. No. 2 scrap has generally had a nominal copper content of 96 percent with a minimum copper content of 94 percent.No. 3 scrap is also referred to as light copper scrap and contains 88- to 94-percent copper. No. 1 and No. 2 heavy scrap refers to clippings, punchings, bus bars, commutator segments, and tube.
The Institute of Scrap Recycling Industries issues a scrap specifications circular each year, widely used in international trade, which categorizes scrap by type and grade. The publication contains 50 separate entries for copper and copper alloy scrap, including four for No. 1 scrap and two for No. 2 material. They are the origin of such colorful names as Berry, Birch, Candy, Clove, and Night.•
Copper scrap market watchers sometimes must feel they’re dealing with one of those intricate 1,000-piece puzzles. The copper scrap puzzle contains a colorful mix of consumers, a diverse blend of scrap processors and traders, and a variety of terms to describe the source and characteristics of the scrap. This amalgamation of pieces, plus ever-changing demands, make forecasting the copper market’s future a challenging task.