This article is from the Copper Spotlight: Forecasts and Risk Factors for the Red Metal session during ISRI2021. Many of the programs available in ISRI2021 will remain available to convention registrants through May 20 on demand. The exhibit hall will remain open during that time as well.
It’s been an interesting year for the copper industry. In April 2020, copper fell below $2 per pound; now prices are around $4.50 per pound—within 10 cents of an all-time high. “It’s quite a ride,” says Chris Lewon, vice president of Utah Metal Works Inc. “I don’t think anyone could have predicted this last year.” During the ISRI2021 session moderated by Lewon, Daniel Fischer, vice president at Kataman Metals, and Jason Schenker, president of Prestige Economics LLC, discussed the copper market for 2021. They examined significant risk factors including continued uncertainty surrounding the COVID-19 pandemic, the outlook for China, and the availability of copper scrap.
For Schenker, the manufacturing sector is the real MVP of the last 12 months. He points to major purchasing managers’ indices (PMI)—Institute for Supply Management, Caixin China, and Eurozone—showing the global manufacturing recovery. Since global manufacturing is high, copper prices are also high. There’s much growth on the horizon. The International Monetary Fund projects world output at 6% in 2021 and 4.4% in 2022, compared to a 3.5% contraction in global output in 2020. Advanced economies are expected to grow 5.1% in 2021 and 3.6% in 2022. According to the IMF, the U.S. will grow 6.4% in 2021, and 3.5% in 2022. Emerging markets and developing economies are expected to grow 6.7% in 2021 and 5% in 2022.
Importantly for the copper market, consumption of goods contributed greatly to U.S. gross domestic product growth in the first quarter of 2021. U.S. GDP was 6.4% and durable and nondurable goods consumption contributed seven percentage points. Categories in the negatives included investments, inventory, and exports. Demand for goods is very high. In light of the pandemic, Schenker says, when people could not spend money on experiences or services, they turned to physical goods.
Copper and other commodity prices are on the rise. Producer inflation year-on-year changes in March 2021 were plus 4.2% total and plus 3.1% core. U.S. consumer price index year-on-year rates were plus 2.6% total and plus 1.6% core in March. “This is the type of inflation the [Federal Reserve] watches,” Schenker says. “The Fed cares about what consumers buy, not companies.”
There are several areas to watch for copper, including PMI numbers, the cost of money, interest rates, and federal policy and quantitative easing policy (where a central bank purchases at scale government bonds or other financial assets to put money into the economy). “It’s difficult to have bearish outlooks and not be concerned prices will continue rising, because the manufacturing sector is so strong and demand is strong,” Schenker notes. People returning to work and the economy’s continued recovery could lead to more demand for goods. “Hopefully that is sustainable going forward,” he says.
China and the Copper Market
For Fischer, the global copper market is evolving, but its essence never changes. China, in particular, is evolving; its processes are becoming more sophisticated and organized compared to the early 2000s. “China is moving up on the scrap processing ladder,” Fischer says. Not only has China improved its technology; its specifications on scrap have tightened since 2017. China no longer allows importation of mixed metals, and there’s less Birch/Cliff copper scrap and yellow brass scrap that can meet China’s specifications.
The lack of No. 2 scrap copper and honey brass that can meet China’s quality standards are likely driving high demand for copper scrap. Fischer notes suppliers in Latin America, the U.K., and even in the U.S. can’t consistently meet the new standards due to paint or wire in the scrap. “Discounts for No. 1 copper have tightened,” he says.
In recent years, intermediary countries including Malaysia and Thailand performed sorting before scrap moved on to China. “There’s a select few suppliers in the U.S. and other countries who know how to meet the new specifications,” Fischer says. It’s difficult to sell No. 2 to China: If scrap meets the grade it goes directly to China, or if not, to Hong Kong or another place that accepts Birch/Cliff copper.
Both experts predict electrification and electric vehicles will make an impact on the copper market. Fischer notes new infrastructure surrounding electric vehicles will create a huge demand for copper. “Not only with all the charging stations everywhere, but the copper wiring for the cars themselves,” he says. He doesn’t think there is enough copper to meet current demand—even before the upcoming boom from electrification. Schenker thinks the forecasts for electric vehicles are lofty. “The U.S. government’s official forecasts still expect 80% of year new sales to be traditional petroleum vehicles in 2050,” he says. He notes that there still is more oil than rare-earth metals.
The world population is expected to continue growing in the next 20–30 years, and Schenker anticipates more people will demand more goods and products. Expectations of electronic vehicles and the copper they’ll require would only pile on to an already overheated market. “People might want it to be a certain way, but it’s like with carbon dioxide reduction: How are we going to get there with an additional 2 billion people in the population in the next 20–30 years? How will the carbon footprint go down?” Schenker asks. While a difficult road lies ahead, he anticipates recycling will become a critical part of the process.
Photo caption: (Clockwise from left to right:) Chris Lewon, vice president of Utah Metal Works Inc, Jason Schenker, president of Prestige Economics LLC, and Daniel Fischer, vice president of Kataman Metals, discussed the copper market for 2021.