When it comes to
the long-term view of the ups and downs in the
copper market, it can be argued that John Gross
has it covered.
As China’s monster copper appetite stagnates
a bit and the world’s copper producers gather at
the CESCO conference in Santiago, Chile, the red
metal is an extremely hot topic this week. Gross
has been involved with copper for more than
three decades, running the gamut from metal
buying, brokering and trading, to having served
as director of the American Copper Council and
member of the COMEX Advisory Committee.
As current president of Rhode Island-based
J.E. Gross & Co., Inc, a metals management and
consultancy firm, Gross also publishes The
Copper Journal, once a print-based industry
newsletter and now an online site featuring
data-driven price and inventory charts. He
founded the CJ in 1989.
I spoke with Gross to get his take on where
copper has been and where it is headed.
METALMINER: What do you consider to be your
specialty within copper consulting?
JOHN GROSS: Primarily managing price risk,
which has become increasingly more important
with volatility in markets. That could be from
managing price risk exposure for companies,
conducting hedging for companies or advising
them in that process along the way.
MM: So the Copper Journal has been
running since 1989 what has changed in the
industry and what has stayed the same?
JG: If we were to look at the industry, and
the significant changes over the past 20-30
years, we’d have to take the US industry as an
example. The number of US producers has declined
very dramatically. There were 9 or 10 primary
producers in the US in 70s and 80s, such as
Kennecott, Freeport-McMoRan, and ASARCO. Whether
companies closed down, or whether they were
acquired, the [bottom line is] the number of
producers has declined. On the secondary side of
the market (in the early 80s), there were five
major smelters of copper scrap, and today there
are none! The same result has applied to the
consumer side of the business.
What has remained the same is the mechanical
structure of the market; the pricing mechanism
within North America for the most part, with
COMEX as the base price mechanism. But floor
trading has dwindled considerably. It’s part of
the evolution of the industry. Also, despite the
ebb and flow of the economy overall, copper is
the single most important industrial metal in
the world. Volume-wise, copper is third compared
to steel and aluminum, but it’s still more
MM: Where do you stand on the issue
of substitution (e.g. aluminum replacing
JG: Any time you get a run-up in price, like
in the 70s and 80s, the issue of substitution
comes to the surface. Indeed, there are many
areas in which this can occur. The price of
copper is almost three times the price of
aluminum, so where a company can use aluminum in
wiring, for example, or in auto applications,
that would be an economical alternative.
MM: Your thoughts on how China plays
into the copper market these days?
JG: If we go back prior to 2010, the US had
been largest producer/consumer of primary copper
in the world, and in 2002, China overtook the US
and has grown dramatically. China accounts for
40 percent of global copper demand, and to
verbalize the obvious, it will continue to have
significant impact on the market. But it becomes
a question of the rate of growth that will be in
place. China has been working to slow growth to
some degree. We’ve seen reserve requirements put
in place over the last several months, and we’ve
had interest rate rises. Long-term trend is
continued growth. Last year, it grew at slower
rate. The other major issue is we don’t have
good, solid statistics out of China. There’s
[hardly any] transparency. That won’t change
METALMINER: Simon Hunt recently said in an
interview that most of the copper consumption in
recent years has been due to financial
investment rather than industrial purposes; do
you agree with that sentiment?
JOHN GROSS: I would. You can take it from two
different points of view: the heightened level
of speculation in the market, which directly
contributes to volatility, and the advent of
ETFs in the metal market. Although [ETFs] have
been on “Page 1 as early as a few months ago,
they’ve fallen to say page 2 or 3 recently. But
the assumption there, the logical progression,
is that if the [physically backed] ETFs are
requiring physical metal to support them, they
will take metal away from the industry.
MM: What about reports of the
discrepancy between “actual consumption and
“apparent consumption in China, which could
indicate oversupply rather than shortage?
JG: The difficulty of oversupply is you can’t
quantify it. You are guessing what it may or may
not be, and there is little to be gained from
MM: What are a few important points that a company should know about hedging their copper buys?
JG: Each sector of the industry has its own traditional approaches to pricing of metal. The key issue is, if a manufacturer is selling metal over a certain time period, it is incumbent upon them to hedge their price risk¬¶In terms of hedging copper buys, the question should be turned around. That is to say, how a company sells copper contained in product should dictate how they buy.
For example, assume a wire & cable manufacturing company sells copper in cable with the ‘copper price in effect√‚¬ on date of shipment’ and they ship consistently throughout the month. The company is generally receiving the average price over the course of the month and therefore should be buying copper at the average price in that month. Thus, they are inherently hedging their risk.
On the other hand, if a company today is making a sale for delivery in, say, September at a firm price, they should lock in a purchase price with their supplier, or alternatively buy a September futures contract as an offset to the sale.
MM: Are futures the best/preferred way to go? Or are there
other forms of effective hedging?
JG: The futures market is the most logical
approach. Options can be viewed as an
alternative, but typically they become more
expensive, which reduces their viability for
MM: Are you in the camp of the bulls
in terms of continually rising copper prices
throughout 2011 and beyond? What’s your
JG: I cannot say I am in the camp of those
who expect the price to rise continuously.
Instead, I watch the market day to day. In my
mind, there are too many risks that may prevent
the market from achieving the record high prices
that many anticipate. Although if, as expected,
the market√‚¬ will be in deficit this year, we
have seen inventories on COMEX, LME and Shanghai
rising — with the total up almost 112,000 metric
tons since year-end. Also, the forward price
curve has changed dramatically over the past few
months. May 11 an 12, for example, was in a
16√‚¬Ę backwardation in mid-December, but is now
trading at a 4√‚¬Ę contango¬¶I don’t discount
the possibility of higher prices, but I would
have to see inventories decline, the
backwardation return, and evidence that demand
from China will not be negatively impacted by a
MM: I know you’re a copper expert,
but any specific thoughts on other base metal
activity that buyers should keep an eye on?
JG: The one thing I’m concerned about and
this applies to all base metals is that we have
a very significant bubble developing in metal
markets and commodities overall. At some point
it will correct; I don’t know when, and I don’t
know what will cause it, but it will correct at
some point. Certainly copper, lead and zinc are
the big [ones to follow]. With aluminum, there’s
an excess of 4 million tons in inventories.
Arguments exist that metal is tied up in
financing, but that doesn’t mean the metal
itself does not exist!
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
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.