Twists & Turns in the Wire Market

 May/June 2014

Conditions for U.S. wire choppers are mixed, with metals theft, low margins, and competition the biggest headaches, they say. Wire from automobile shredder residue could be the next big thing, but some are skeptical.

BY ELLEN RYAN

Despite the ubiquity of wireless devices, billions of miles of wires run underground, above our heads, and through everything around us as part of the infrastructure that connects people to technology and to each other. Although the need for this circulation system has only grown, the market for wire scrap has fluctuated in the five years since the economic recovery began. Scrap companies that specialize in wire chopping say their fortunes rise and fall primarily due to the economy—most notably, the health of the construction and demolition industries and China’s participation in the scrap market. Advances in equipment that allow more recyclers, including smaller yards, to get in on the wire-processing act also have been a factor lately, they say. So is metal theft, which increases costs and can affect supply. All in all, the uncertain wire processing picture seems to match that of the scrap industry as a whole.

Quality and Quantity

Some high-capacity yards report the quality of scrap wire they receive has improved over the past five years. “Many contractors used to throw everything in a bin. Now they separate it out and give us clean scrap because they get paid better for it,” says Josh Trudeau, president of Cable Management (Meriden, Conn.). Jeff Mallin, president of Mallin Bros. Co. (Kansas City, Mo.), agrees that “as things slow down a little bit, people pay more attention to what they put in bales.” But Toby Shine, president of Shine Bros. Corp. (Spencer, Iowa), says that since the export markets dried up during the recession, he’s found more lower-quality wire mixed into his supply.

What about volume? For some it’s up; for others it’s down, and they report having to work harder to secure their supply. Brian Shine, president of Manitoba Corp. in Lancaster, N.Y. (and not related to Toby Shine), says the company’s supply has been relatively level over the past five years. The same was true at Utah Metal Works (Salt Lake City), reports Mark Lewon, president, but volume has fallen since October 2013.

Regional variations exist as well, processors say. There is a better supply of aluminum wire in the South, where there are more wire cable manufacturers, than in the Northeast, says Bernard Schilberg, CEO of Prime Materials Recovery (East Hartford, Conn.). That’s why the firm just added a “mega-line” to process aluminum wire at its Orangeburg, S.C., facility.

 “The wire and cable industry’s lower production [volume] during the prolonged recession resulted in a significant decrease in scrap volumes for the wire choppers, including OmniSource,” says Dick Zampiello, senior marketing executive for OmniSource Corp. (Fort Wayne, Ind.), who works from Washington, Conn. Even now, the industry has not returned to the peak levels of 2009, he says, with wire manufacturers generating perhaps as much as 10 percent less scrap. Still, Zampiello credits his firm’s long-term relationships with the industry’s manufacturers and utility companies for “less of a dip than we might have had” in the past few years. Those long-term contracts have stymied other recyclers, however. Trudeau estimates that Cable Management gets less than 10 percent of the wire available from utility companies in the tri-state area of New York, New Jersey, and Connecticut because other scrap processors have secured long-term contracts that only come up for bid periodically.

Two wire processors report their pursuit of more wire has been successful. Mallin Bros., which processes all nonferrous metals but focuses on aluminum, has added customers from all over the country, Mallin says. He credits a boom in U.S. infrastructure development, specifically the construction of new power lines, for generating more scrap. His firm has seen its volume increase 12 to 18 percent a year since 2009, he says. Upstate Shredding-Ben Weitsman (Owego, N.Y.) has extended its hours of operation and acquired several other scrapyards, both of which have increased its overall scrap volume, says owner Adam Weitsman. Greater volume doesn’t always translate to greater profits, however, according to Utah Metal Works’ Lewon. In his experience, greater volume often comes at the cost of quality, so “there’s an opportunity cost to that.”

Chopping Capacity

When Scrap last reported on the wire-chopping market, in early 2009, many processors thought the United States had excess processing capacity. That’s still the case, they say, even though the recession led some companies to curtail or shut down their chopping operations. Other scrap companies have since expanded their capacity, and many smaller scrapyards have started chopping their own wire in the last five years. “I think there are more chopping lines now than ever,” Mallin says. Smaller yards that have recently entered the market “want to control their own destiny,” Schilberg says, “and [they] have the right quality to bring to the marketplace, so they do it themselves.”

One company profiting from what Trudeau calls a “huge boom” in smaller yards processing wire is his firm, Cable Management, because in addition to chopping, the company manufactures and sells wire processing equipment. Some of these equipment buyers were most likely selling unprocessed wire to Asia before the recession, he explains. When that demand evaporated, those firms decided that making their own chops would allow them to make—and keep—more money than selling the wire to domestic processors. “Just since 2008, we alone sold 63 small systems to scrapyards,” Trudeau says, each capable of processing from 500 to a few thousand pounds an hour.

Not every yard has enough volume to make the purchase of wire-chopping equipment worthwhile, other wire processors caution. Smaller scale processing equipment has improved significantly and is “much more affordable—though I am hesitant to say ‘justifiable’ in many cases,” Zampiello says. Brian Shine notes that some yards that added mini chopping lines have since sold the equipment. In fact, Lewon says he thinks smaller operations were “sold a bill of goods.” When prices for chops are high, everyone gets in on the game, he explains. “But if everyone’s chopping their own, demand will sink” because consumers will play the choppers against one another, he says. Further, “some of the bigger consumers in 2013 said they didn’t want to handle chops anymore. That had a big effect on the market,” Lewon says. He names copper and brass mill PMX Industries (Cedar Rapids, Iowa) as one larger operation that stopped taking copper chops, saying it was easier to deal with whole wire. PMX subsequently reentered the chops market, however, because of a lack of copper availability when metal exchanges held onto copper, Lewon says.

The Price Picture

Turning a profit in wire processing has become more challenging, some of these firms say. “One thing we’re all suffering from is margin compression,” says Brian Shine, as the costs to purchase and process wire inch nearer the price they can get for the chops.

Others have found the market for copper and aluminum wire robust. Toby Shine, who’s been in the business for five decades, says that prices for all grades of copper on the exchanges aren’t at or near all-time highs, but they’re still high compared with historic price levels—although he adds that prices have dipped “ever so slightly” lately. “The finished product is selling [high], and so is the scrap,” adds Dan Wycoff, Shine Bros.’ general manager. And with increased and more efficient processing, the cost of acquiring raw material to chop is as competitive as Shine Bros. has ever seen it, Wycoff says.

Zampiello maintains that “copper will reap the benefits of a rebound in the economy faster and stronger than aluminum in the nonferrous metals,” pointing out that it has broader applications than aluminum, generally speaking. It’s used almost exclusively in communication technology, for example.

LME three-month-average prices seemed to agree with his assessment, at least through 2013. Yearly average prices for both aluminum and copper peaked in 2011 at $1.10 and $4 a pound, respectively. In 2013, aluminum was 22 percent below that peak, whereas copper was down only 17 percent. As of late April, however, aluminum had fallen 4 percent from its 2013 average and copper had fallen 8 percent, bringing them 25 and 23 percent below their 2011 peaks, respectively.

Lewon points to one factor in the aluminum market that might be distorting prices. Commodity traders and others have alleged that the banks and metal exchanges that operate aluminum warehouses around the world are making it difficult to get aluminum out of the warehouses. “Aluminum is trading at a 4½-year low today [in mid-March], but there’s a big premium for material [that’s] available right away,” Lewon says. “Way too much aluminum is being produced around the world, and there are clear parallels to the Hunt brothers,” he says, referring to the Texans who tried to corner the silver market in the late 1970s, driving up the price before it crashed in 1980. “In the long term, [the warehouse operators] are setting the industry up for disaster.”

Mostly Domestic Demand

Overseas markets have been the drivers of demand and price for many scrap materials in recent years, but wire processors say they find more opportunity in the United States. Traditionally, export markets in Asia were the destination for lower-quality scrap that needed manual processing to extract its full value. With domestic wire chops, however, “materials are higher-grade, which can be consumed domestically, so there’s no need to go to lesser markets. I don’t see that ever changing,” Schilberg says. Others want to preserve their domestic supply for the long term. “It’s a global economy, sure,” Mallin says, “but if we don’t support the manufacturing base in this country, it won’t support us.” Maintaining relationships with existing clients is important, too. “We’ve developed customers we’re loyal to, and they’re loyal to us,” Toby Shine says. “We’ve been through the hot Asian market, but we’ve developed relationships [here], and we want to maintain them.”

That “hot Asian market” has long since cooled. China has been less aggressive and competitive on most scrap materials for several years, processors say, even before Green Fence, its initiative in 2013 to boost enforcement of its customs, environmental, and smuggling laws. Stricter regulatory enforcement has meant that China is no longer a destination for lower grades of chops. “The Chinese have become increasingly choosy about what they will buy,” Lewon says. “They are still a market of last resort—they’ll pay something for lower-grade items, but it won’t be anywhere near what it used to be.”

Outside of China, the European market “has been very quiet,” Brian Shine says. Elsewhere in the world, “there’s more demand if you don’t take into account arbitrage in Europe. It dictates where you sell your high-grade copper choppings,” says Schilberg of Prime Materials Recovery. “Also aluminum, though the swings have been much less.” Germany, Italy, and Spain are three countries where Schilberg has seen greater demand for copper and aluminum chops.

The Impact of Theft

Supply, demand, and price aren’t the only factors affecting the bottom line for wire processors. Materials theft has been creating new cost burdens both directly and indirectly, especially for those who specialize in copper wire. Manitoba Corp. does not do any peddler business, but the theft problem has affected its scrap dealer suppliers, causing “a trickle-up effect—they purchase less [copper wire] or take longer to accumulate and then ship” the material, Brian Shine says.

These yards themselves also are targets of thieves. Prime Materials Recovery has installed a 24/7 security system, hired guards, and changed its logistics to make trucks containing scrap less vulnerable to theft. The company also fully researches and documents all pertinent information about freight companies and drivers before booking shipments.

Cable Management’s Trudeau says that since 2008, the company has seen an uptick in the number of times law enforcement contacts it to inquire about stolen scrap metal. While Trudeau doesn’t have a problem with law enforcement officials—they’re just doing their jobs, he says—he is frustrated with the laws themselves. In Connecticut, the laws are so restrictive that scrap processors often face stiffer penalties than thieves who steal scrap, and they face the threat of losing their scrap business license, he says. Processors who fail to take photos of vehicles used to bring in scrap could receive a $500 fine for the first violation. Perpetrators, on the other hand, often only receive a minimal trespassing fine when the stolen material is valued at less than $100, he points out. Because processors fear losing their scrap license, many have invested almost $10,000 in recordkeeping computer software, he adds. “We have to do so much documentation and go to so much expense,” he says, “and so little happens to the thieves.”

In New York, “we knew the laws were coming” to tighten purchasing procedures at scrapyards, says Upstate Shredding’s Weitsman, so his company implemented security systems that include taking photos of every load and every seller. Such investments are an additional cost, but they do pay off, he says. “When the police know you’re trying [to help], they’ll work together [with you] rather than at cross-purposes.”

Is the Future in Fluff?

Among Manitoba customers that now chop their own wire, Brian Shine says, are auto shredding yards. New technologies can capture more copper wire from the fluff—the auto shredder residue stream that remains after shredding and ferrous and nonferrous separation. One equipment seller reports its process can capture 97 percent of the copper from the ASR stream, for example.

These wire processors note that vehicle wire is not easy to process and wonder whether the quality and quantity of copper coming out of that stream will justify the cost of the equipment. ASR contains small pieces of not just copper, but brass, stainless steel, and other materials. The specific gravity of the copper and stainless are very similar, which makes them tough to separate, Lewon says—and stainless can damage wire processing equipment. He expects chops coming out of an ASR stream will be more contaminated—“they’ll be Cobra instead of Cocoa,” he says, referring to ReMA scrap specifications for copper chops that are 97-percent pure versus 99-percent pure. The Cobra is typically less desirable and sells for a lower price. And some consumers might balk at the nickel and iron levels coming from the stainless, Lewon adds.

Danny Rifkin, president and CEO of MetalX (Waterloo, Ind.), says new technologies to process ASR wire into chops remove stainless steel about midway through the chopping process. MetalX plans to install such a chopping line at its new processing facility in Indiana in May. Presumably, such equipment would reduce the problems of stainless contamination and equipment damage.

Standard wire processing equipment has seen improvements as well, processors say, becoming more consistent, reliable, and faster. Such “tweaking” in design, which Zampiello says comes from its use in the plastics and grain industries, has resulted in more durable and efficient granulating and separating equipment. Manitoba’s Brian Shine mentions an electrostatic process that can be added at the end of the line to aid separation, slightly reducing the volume of tailings and recovering more copper. He’s keeping an eye on the technology and its price, he says, to see if it could make a difference to his bottom line. Ultimately, the market will decide whether such innovations in technology are worth the investment. 

Conditions for U.S. wire choppers are mixed, with metals theft, low margins, and competition the biggest headaches, they say. Wire from automobile shredder residue could be the next big thing, but some are skeptical.