On a hot, humid summer day in 1974, I
paid my first visit to the United States Metals
Refining Company in Carteret New Jersey. That
day not only left an indelible picture in my
mind, but also marked the beginning of a long
love affair with copper.
USMR as it was known throughout the industry
was the largest secondary smelting and refining
facility in the United States, and was a
division of Amax Inc., one of the largest and
most diversified natural resource organizations
in the world.
In operation since 1902, USMR was located 20
miles southwest of New York City, with a deep
water port on the Arthur Kill, (kill being the
Dutch word for river or canal) directly across
from Staten Island NY. It was a landmark unlike
any, punctuated by its 425 foot high smoke
stack, the tallest stack east of the
Mississippi. There was nothing small about the
operation, or its complexity. Annual production
of refined copper was in the range of 180,000
MT; silver: 40 million troy ounces; gold:
800,000 ounces; platinum and palladium combined:
100,000 ounces, in addition to some 75,000 tones
of oxygen free copper, as well as copper powder.
Having just joined a management training
program within the Copper Division of AMAX, I
was sent to USMR to see the operation to get a
better understanding of the work I would be
doing. What an education! Smelting; refining;
blister copper; anodes; cathodes; ingots;
wirebars; billets; cakes; precious metals;
scrap, scrap and more scrap. It was enough to
make your head spin, but there was no better
place to learn the business.
That was a long time ago, and a great deal
has changed since then, reflecting the ongoing
evolution of our industry.
Until the late 1970’s New York was the center
of the universe for the copper industry.
Although the mines were located out west, their
headquarters were for the most part in
Manhattan, along with the bankers, brokers,
merchants, and of course the New York Commodity
Exchange. Going just beyond the city, the copper
trade was a major part of industrial activity in
the Northeast. Not far from USMR, American
Smelting & Refining had a plant in Perth Amboy
New Jersey, while Phelps Dodge produced copper
at their secondary operation in Laurel Hill,
Queens New York. Being on the water enabled the
copper producers to ship wirebars by barge to
wire & cable mills along the Hudson River, or
cathode, ingot and wirebars to Commodity
Exchange warehouses. Not far away, the Copper
Valley in Connecticut was home to the brass mill
industry, while dozens of wire mills were
scattered about New Jersey, Connecticut, Rhode
Island, Massachusetts, and upstate New York.
(click on
charts below to view)
Of course, where goods were manufactured,
scrap was generated, and with it, a network of
scrap dealers who’s job was to find a home for
the metal to be used again. This is one of the
most important characteristics of copper – its
ability to be recycled, over and over again,
regaining its natural state, after being
refined, or being used directly in the
application of a different product.
Paradoxically, although the recycling of
copper is essential to the industry, key sectors
of it no longer exist. The advent of stringent
environmental regulations, coupled with cyclical
market conditions as well as outdated
technology, all took a severe toll on secondary
smelting and refining in the United States.
Given the importance and complexity of copper
recycling to our country, and indeed the global
economy, it is important to look at long term
trends to better understand where the industry
was, where it is now, and what the future may
hold in store.
Typically when discussing production and
consumption of copper, the point of reference is
refined metal. But this requires explanation, as
the supply of refined copper is a combination of
primary material, or that which is mined from
ores, along with scrap, or secondary material
that was recycled. Further, copper scrap can be
divided into two major categories. They are 1)
new scrap, generated in the manufacturing
process, or 2) old scrap, which could result
from a building being torn down, old machinery
being broken down, or an automobile being
dismantled. Depending on the grade of metal,
scrap from either category may be consumed
directly in another application such as a
foundry, where strength is more critical than
purity, or in a brass mill where the copper will
be alloyed with other metals. Historically,
lower grades of scrap not suitable for another
direct application, due to impurities,
contamination, or even market conditions would
find it way to a secondary smelting and refining
operation.
As a point of reference, in 1980, 1.686
million metric tones of copper was produced in
the United States, of which, 1.256 MMT, or 74%
was from primary material, while 430,000 MT, or
26% was from scrap processed through a secondary
operation. At that time, six major secondary
smelting and refining facilities were operating
in the United States.
The early to mid 1980’s was a very difficult
and painful period for the copper industry, as
low prices, high cost labor, and strict
environmental requirements reduced output of
metal overall, with secondary facilities hit
particularly hard as some companies to include
USMR and the PD Laurel Hill facility were forced
to close permanently.
By 1988, market conditions improved
dramatically, but the structure of the industry
was markedly different. That year 1.852 MMT of
copper was produced, but secondary sources
comprised just 115,000 MT, or 6.2% of the total.
1998 saw the peak in total domestic output of
refined at 2.487 MMT, but it was also the final
year for secondary production, as the last two
remaining facilities threw in the towel due to
the high cost of regulatory and environmental
compliance.
In looking at consumption, just as we saw
with production, the numbers are considerably
larger when scrap is included. In 2007, domestic
consumption of refined copper was 2.151 MMT, of
which copper rod mills used 1.610 MMT, or 75% of
the total, while brass mills took in 481,000 MT,
or 22%. However, total copper consumption in
2007 inclusive of scrap was 3.038 MMT, with rod
mills representing 1.636 MMT, or 54% of the
total while brass mills used 1.146 MMT, or 38%,
with the remainder going to foundries, powder
plants and other sectors.
If there is any curiosity in the numbers, it
is found within the global breakdown of
statistics. The United States is the largest
economy in the world, and until 2002, was both
the largest producer and consumer of copper. The
equation changed that year as China surpassed
the United States in both categories. How did
this transition occur? Some twenty years ago
China began gradually moving from a centrally
planned Communist economy, to a market driven,
quasi capitalistic system. With this change the
country marshaled its resources toward
developing an export based economy, driven by
low cost labor and production. Further, it was
free of environmental restrictions that existed
elsewhere, and the doors were opened for foreign
companies to invest, or relocate their
manufacturing operations.
From that beginning, the evolution occurred
naturally. Manufacturing everything from toys to
tools, appliances, electronics, furniture,
machinery, goods of all descriptions required
ever increasing quantities of steel, aluminum,
copper, rubber, plastic, paper, and other raw
materials. Also, just as scrap is generated in
every manufacturing process, China found a way
to recycle materials internally, and also
learned that it could process lower grades of
materials that other countries discarded,
further reducing costs in the supply chain. Thus
as relates to copper, Chinese production and
consumption rose dramatically. In 1991, China
produced 560,000 MT of refined copper, of which
70% or 390,000 MT was from primary material,
while scrap comprised 170,000 MT, or 30%.
Over the subsequent 16 years, China’s
production of copper rose 525% to 3.500 MMT by
2007, with the same ratios of primary and
secondary material holding fairly constant.
Thus, scrap consumption for refining climbed
some 966,000 MT, or 568% to 1.136 MMT, which
does not include scrap used for direct
consumption. Where did the metal come from? All
over the world, and specifically in large part
from the United States.
Despite the nonexistence of secondary
smelting and refining in the US, there was
nevertheless continued demand for scrap by
consumers, particularly in the brass mill
sector. But foreign trade changed dramatically
in 2000 as exports of copper based scrap began
rising exponentially to satisfy the insatiable
demand of furnaces in China, among other
countries. From 315,000 MT in 1999, total
exports of copper scrap more than doubled to
689,000 MT by 2003, thereby causing a shortage
of scrap raw materials in the United States, and
forcing consumers to seek help from the
government to limit exports of metal.
Within the US, lines were sharply divided
between those to sought to limit exports, in
order to make more metal available to domestic
consumers, as opposed to the other contingent,
who believed metal should be sold to the highest
bidder, regardless of where they were.
Ultimately the argument for free trade
prevailed, as the government took the position
that limiting exports would result in
retaliation by foreign countries, or lead to
other protectionist measures. Clearly, this was
a contentious issue, but not without precedent.
In 1984, as domestic producers were
struggling to survive in an environment of low
market prices and the high cost of production,
they petitioned the government for assistance to
stem the tide of refined imports. The basis of
their argument was that foreign producers were
not held to the same standard of environmental
compliance as the domestic industry, and lower
cost foreign labor was subsidized by government
programs. In 1984, President Reagan rejected the
producer’s request, effectively saying that
import restrictions were “not in the overall
national economic interest”.
Historically, the United States has been a
net importer of refined copper, and a net
exporter of scrap copper. In 1995 net imports of
refined stood at 211,000 MT, and rose 339% to
926,000 MT by 2005. During this same period, net
exports of scrap doubled from 273,000 MT in
1995, to 543,000 MT in 2005.
The obvious question is, ‘why would we export
a vast amount of scrap that should be recycled
here’? The simple answer is the high cost of
regulatory and environmental compliance. Ten
years ago we saw the closure of the last
secondary smelting and refining facility in the
United States, thus, there is no home for much
of that material to be recycled here.
Today, the copper industry, and indeed global
economies are facing severe challenges. The past
five years saw rapidly rising prices driven by
strong fundamentals, and supercharged by cheap
and easy credit, that fostered excessive
speculating trading. Those days are gone.
Markets that once embraced risk have become risk
adverse, and the theory of a ‘Super Cycle’ in
commodities, that would hold prices aloft for
many years to come, has gone bust.
Nowhere was this more apparent than in the
price of copper, being as it is the bellwether
of economic activity. On July 2, 2008, Spot
copper closed on Comex at $4.08 per pound. By
year end, the price had collapsed to a low of
$1.25, off $2.83, or nearly 70%. In response to
the downward spiral in global economic activity,
governments and their respective Central Bankers
have been injecting trillions of dollars into
the financial system in an effort to stem the
slide, and reignite economic growth.
In time, the excesses of the past several
years will be eliminated from the system,
setting the stage for recovery, to be followed
by growth and expansion once again. As for
copper, it too will recover, and while we will
not see resurgence in smelting and refining of
secondary copper in the United States, it would
not come as any surprise to learn that someone,
somewhere is developing an environmentally
friendly process, that will make it economically
feasible to recycle more metal here.
John E Gross February 2009
John Gross is president of J.E. Gross & Co. Inc,
a metals management and consultancy firm
established in 1987 and publisher of
The Copper Journal, an
industry newsletter he created in 1989. In
addition to his consulting activities, Gross has
worked with global leaders in the metals
industry over the past 35 years. He began his
career in metals in 1973 when he joined U.S.
Metals Refining Co., a division of Amax Inc.,
where he rose to become manager of
administration. In 1981 he joined Hudson Bay
Mining and Smelting as manager of trading and in
1983 became a futures broker with Johnson
Matthey & Wallace, specializing in metals on
Comex and the London Metal Exchange.
Gross is no stranger to the electrical
wholesaling industry, as he was vice president
of strategic metals for the North American
operations of BICC Cables Corp. in 1985 (now
owned by General Cable). More recently, he
was director of metals management with Scott
Brass, a producer and manufacturer of copper and
brass strip products.
To receive a sample
copy of The Copper Journal, give him a call at
(401) 667-0478 or e-mail him at
john.gross@jegross.com
He is a graduate of Hofstra University in New
York, and a highly decorated Vietnam veteran.
During his business career, he has held
memberships in several trade organizations;
served as a director of the American Copper
Council, and as a member of the Comex Advisory
Committee. Gross is very active in industry
affairs and has written extensively on the metal
markets, industry issues and is frequently
called upon to speak at trade events.