Holding steady

Features - Commodity Focus // Nonferrous

China’s government regulations may have diminished end markets for copper and aluminum scrap, but contractors have found it is still welcome at the scrap yard scale house.

January 8, 2019

Edward R | Adobe Stock

Demolition contractors and mixed C&D materials recyclers know all too well the turmoil that resulted from the People’s Republic of China deciding it wanted to buy less of the world’s scrap materials in 2018.

The effects were minimal in the scrap iron sector, as China was not a large net importer of ferrous scrap in 2017 or 2018. In the plastic and paper recycling sectors, however, this policy led to stockpiles of paper and plastic scrap building up in parts of the U.S. in the first half of 2018.

Somewhere in between these extremes, the nonferrous scrap market saw demand for some export grades dwindle in the first half of 2018 because of China’s restrictions, but ultimately domestic and global demand for copper and aluminum scrap proved resilient. The copper wiring, pipes and fixtures and the aluminum sheet harvested from demo sites retained most of their values despite the abrupt disruption in some scrap export markets.

Hungry, hungry furnaces

The Chinese government has cited environmental concerns as the primary reason for its sudden phasing out of scrap imports, as contaminated bundles of “foreign garbage” continued across the country’s borders virtually unabated for years.

For the past three decades, buyers and sellers of scrap exported from North America to China have had little concern with purity rates. The fundamentals of making scrap shipping viable, however, lie in ensuring the desirability of secondary raw materials. This includes copper and aluminum scrap, which together have been used to feed active furnaces throughout the country in an effort to build China’s urban infrastructure in the 21st century.

As 2018 unfolded, it became clear that the biggest victims of China’s scrap import restrictions were not American recycling companies, but rather metal and paper producers and other manufacturers in China, as well as the Chinese scrap processing middlemen who serve them.

The global economy continued to demand copper and aluminum in construction and automotive applications (with China remaining a leading consumer) over the course of the last year, but much of the responsibility pertaining to the value-added activity of turning copper and aluminum scrap into secondary metal simply moved from China to other nations.

Statistics gathered by the U.S. Census Bureau and aggregated by the U.S. Geological Survey (USGS) detail this 2018 geographic shift.

In the first six months of 2017, some 443,000 metric tons of copper-bearing scrap were shipped from the U.S. to China. In the first six months of 2018, just 214,900 metric tons were shipped from the U.S. to China—a decline of more than 51 percent.

Total U.S. red metal scrap exports in the first half of 2018, however, fell by just 8.4 percent, with buyers in several other nations stepping in to buy newly available secondary commodities. Some of these eager buyers were competitors of Chinese companies, while others were Chinese entrepreneurs who set up shop in neighboring nations in order to retain access to U.S. scrap and keep their businesses alive.

Among the nations purchasing more U.S. copper-bearing scrap in the first half of 2018 compared to 2017, and their respective volume increases, were: Japan, with a 70 percent increase; Taiwan, with a 201 percent increase; and Thailand, with a staggering 5,300 percent increase.

While business has shifted considerably in the wake of the China restrictions, a December 2018 press release from the Port of Oakland in California shows how some exporters have managed to weather the storm by diversifying where scrap is getting shipped.

Reporting on its activities for the first 10 months of 2018, the agency said its scrap metal exports had increased by 10 percent year over year. The Port of Oakland said shipments of scrap metal to China have slumped by 43 percent, but the loss in that market has been largely offset by increased shipments to Taiwan, Vietnam and India.

The agency also reported a similar trend for scrap paper, saying in the first 10 months of 2018, it exported 3 percent more scrap paper compared to the same time period in 2017. While Chinese purchases of cardboard and other scrap paper fell by 37 percent in 2018, Oakland scrap paper exports to Taiwan went up by 522 percent, and shipments to Vietnam were up by 344 percent.

At the scale

Along with the Chicago-based Comex market and the Shanghai Futures Exchange in China, the price of copper established by the London Metal Exchange (LME) helps determine how much a scrap recycler will pay contractors for the aluminum and copper-bearing scrap they bring across a scale.

Despite the uncertainty in the red metals scrap market in early 2018, a combination of primary copper fundamentals and investor sentiment kept the price of copper strong in the first six months of the year. The average monthly LME price of copper ranged from $3.08 to $3.21 per pound during those six months. (Scrap recyclers pay a discount to this primary price to cover the costs of processing and shipping.)

Commodity investors soured somewhat on copper in the second half of 2018, however, with the LME average monthly pricing falling to a range between $2.73 to $2.83 per pound. LME aluminum pricing, meanwhile, peaked in April 2018 and drifted between $.88 and $1.06 per pound during the second half of the year.

The market forecasts on nonferrous metals heading into 2019 appear to have more to do with the perceived health of the Chinese and American economies and the effects of the trade dispute between the two nations. The impact of these factors on scrap scale pricing, however, could be more meaningful than the scrap-specific conditions.

Although copper and aluminum scrap export restrictions may have clouded optimism in the early part of 2018, overall global metal demand can cause the high-rollers who speculate on metals pricing to lose interest in being bullish on copper or aluminum.

As of early December, analyst Will Adams of Fastmarkets AMM said “some economic data is beginning to look a bit tired,” but also told a Reuters reporter that “underlying (supply) fundamentals for copper are strong and going to improve” in 2019.

Perhaps lost in the focus on scrap export data is that even with more red metal scrap available to U.S. buyers, these brass mills, foundries, refiners and ingot makers actually consumed 5.5 percent less red metal scrap in the first half of 2018 compared to the first six months of 2017 (463,000 metric tons in the first half of 2018 compared to 490,000 metric tons from January 2017 to June of that year).

Among the important conditions needed for copper or aluminum scrap to grow in value in 2019 will be active construction sectors in the U.S. and China, as well as an ongoing interest in new cars and trucks in both nations. If those demand drivers fall short, you can be sure that scale prices will reflect it.

The author is a senior editor with the Recycling Today Media Group and can be contacted at btaylor@gie.net.