“Even in the best of times, understanding demand is like playing wheel of fortune,” says Trent Poland, commodity manager at metal powders maker Kymera International. “You hope you don’t go bust and you’re trying to outguess the puzzle.”
At the Spotlight on Copper: Red Metal Market Global Outlook session on March 23 at ISRI2022, Poland was joined by Jason Schenker, president of Prestige Economics LLC. Brian Shine, CEO of Manitoba Corp., moderated.
Poland discussed common issues facing copper mills including staffing shortages, the availability of delivery appointments, and logistics malfunctions. “For mills, the chaos of trying to predict what we need is compounded when the plant deliveries miss their appointment,” he says. Another growing problem is the decline in quality of recycled commodities coming into the mills. “I think it appears to be a lighter shortage issue, but mill buyers have a limited number of warnings and mulligans we can issue before the plant goes into full rebellion where there will be downgrades and rejects,” Poland says.
He recommends recyclers increase their quality checks and do an extra check before loading trucks for the mill. “Let an extra measure of caution rule the day,” he advises. He also discussed the issue of short loads, truckloads of copper weighing between 34,000 and 39,000 pounds instead of the typical 42,000 pounds.
“This is putting the consumer at market risk,” Poland says. “At some point, one must buy an additional load jut to make up for the small shortages. Eventually supplier corrective action will have to take place. A little communication with the mill goes a long way.”
He suggests getting a mill’s approval before shipping a short load. “It’s exasperating on our end when we receive a 36,000-pound load when a plant is not in full production when we could have waited a week or two for a full load,” he explains.
Poland says recyclers and mills are typically good at creative problem solving and conflict resolution. The industry also values personal relationships. “To me, [these qualities] are the fundamental keys of getting past these challenges,” Poland says. “That way we can hammer out a solution we can both live with, and we survive to scrap another day.”
Schenker reviewed positive aspects in the copper market. “There’s strong global manufacturing and global growth coming out of COVID-19; demand for physical goods and copper are high,” he says. “Many manufacturing companies have been taking 2023 orders since October ,” Schenker says. Downsides of the market include rising interest rates; global growth slows; the eurozone facing stagflation; a global credit crisis; and possible third-party sanctions because of Russia’s war in Ukraine.
Schenker discussed the Federal Reserve’s March 16 announcement that it would raise target federal fund rates. “They raised rates by a quarter percentage point; from near zero, the rate is now in a rage of 0.25% to 0.5%,” Schenker says. “That’s still pretty low, but through the end of 2023 the members of the Fed are forecasting raising the rates by 25 points 10 times.”
Schenker added to Poland’s notes about recycled commodities quality. “When copper prices are low you may hold onto the material and then wait for the price to go up, it’s speculative trading,” Schenker says. “They’re just waiting to cash out. But with copper prices and other nonferrous [metals] at these [very high] levels there’s few people holding on for higher prices.”
Issues including sustainability and environmental, social, and governance (ESG) goals may impact copper demand in the long term, Schenker said. He mentioned a recent analysis by climate-change activists where the top 25 largest companies in the world were asked about their plans to reach net zero greenhouse gas emissions by 2050. “Some [companies] responded by committing to planting trees, but many of those companies just don’t know how they plan to reach that goal,” he says.
Schenker also discussed the potential impact of the Securities and Exchange Commission’s March 2 announcement that it is exploring rulemaking to require publicly traded companies to disclose their climate-related risks and management strategies. There is a 60-day comment window, with the SEC expected to finalize the rules before December.
Examining data from the International Energy Agency, US Geological Survey 2021, and IMF staff calculations, he noted the current production rates of some important metals, including copper, are likely inadequate to satisfy future demand and to meet the 2050 net zero emissions goals. “We need to be thinking about recycling everything that gets mined even but even if we recycle everything there still won’t be enough metal,” he says.
China and Russia produce several critical minerals that are vital for meeting emission goals. “They’re two of the biggest producers of many critical metals, and there’s no longer a strategic reserve of metals in the U.S.,” Schenker says.
Schenker told the audience if China were to provide Russia with military aid for the war in Ukraine, it’s possible the U.S., Europe, and others would respond by imposing sanctions. “We could be in a severe trade war if China sends military aid to Russia,” he says. “If we have a choice between entering a world war or a second Cold War with sanctions on China, we’d choose the second Cold War every time.”
Photos courtesy of ISRI.