When executives from copper producers and service centers look at the landscape for red metals in 2008, they see encouraging and discouraging news in almost equal measure. For every vista that looks clear, there’s a storm cloud brewing on another horizon.
“You hear all this bad news about liquidity in the financial markets, concerns regarding the U.S. currency and things such as that,” says Dan Kendall, president of ABC Metals, Logansport, Ind. “But we’ve seen customers that are still busy and new programs being awarded. I choose to look at the good news instead of the bad news.”
How likely a copper executive is to focus on the good news depends heavily on how tied his company is to the automotive or residential construction markets. Companies where those sectors represent a substantial portion of business are much more likely to take a dim view on how 2008 stacks up.
David Martinelli, vice president of sales and marketing for Scott Brass, Cranston, R.I., says his company has seen “a downward trend, as some of our key accounts were automotive.”
Similarly, at Revere Copper Products, “it’s a bit of a struggle, particularly in the construction area, a fairly significant product group for us,” says Don Commerford, senior vice president of the Rome, N.Y.-based producer.
Yet Commerford speaks for many in the industry when he adds, “in other areas, we seem to be holding up reasonably well, so it’s kind of a mixed bag.”
End-use markets where demand remains solid or above average include oil and gas, power generation, mining and general engineering.
“We started off very strong in January,” says Joe Walton, president and CEO of Williams Metals & Welding Alloys, Wayne, Pa. “We’re not in construction. We’re more in the utilities, the power generation side. And they’re running full speed.”
Dick Farmer, co-president of Farmer’s Copper, Galveston, Texas, offered a similar assessment. “Overall, our customers don’t seem to be bothered by what’s going on across the country. As far as markets, anything to do with electrical and oil and gas seems to be thriving.”
Still, the way the market stands today is not necessarily a bellwether for how it will look for the remainder of 2008, regardless of the signs.
“In a world where there’s almost no forecasting, it’s almost impossible to tell what the market’s going to do in three months,” says James Barker, general manager of Hayward, Calif.-based Sequoia Brass & Copper. “The history has nothing to do with the future.”
One aspect of the market that seems to have become more predictable is the annual hike in price at the start of the year, as copper jumped to more than $3.50 per pound in early February. And though red metals producers and distributors enjoy some benefits from higher prices, they worry that excessive spikes could send end-users looking for alternative materials. The likelihood of substitution is a source of considerable speculation.
“I think the threats have passed. Our product serves a purpose where substituting materials is very difficult,” says Al Barbour, president of Concast Metals Products Co., Mars, Pa. “They are generally wear applications where there’s a moving part in equipment, and people don’t want to take risks on that.”
To ABC Metals’ Kendall, it’s not substitution that worries him, but replacement.
“There’s a general mood toward what I’ve heard called, ‘demand destruction.’ Sometimes people substitute, but when the price comes back down they go back to the original raw material. I don’t see that happening with copper. I see people engineering out of copper, which causes demand destruction,” Kendall says.
In some cases, the distinction between substitution and a declining market can be confusing. Commerford says his company has the potential to lose some business to aluminum and painted steel, though it’s not always clear if that’s the driving force behind slower demand.
“Over the last few years, the steel price and aluminum price were quite high, so we were able to dodge a bullet,” Commerford says. “Quite frankly, we’re not sure if the reason behind the current decline is the high price or the slowness in the market. But copper has held up well, even at high prices, so I think it’s more related to the economy at this point.”
Both service centers and their customers are feeling the pinch from escalating copper prices in light of tighter credit conditions.
“It wasn’t that long ago we were at $2.80 a pound and now we’re at $3.40,” Kendall says. “You’re not going to go back to your bank and say, ‘I need more money because copper’s gone up.’”
At the same time, Kendall says, the tightened market presents additional opportunities for the well-run service center. “If a service center is well-positioned, it could capitalize on a company’s desire to keep inventories low and cash flow high by coming to a distributor rather than buying direct from the mill.”
Others have seen new business from former mill-direct customers, as well. “Overall, our business is pretty good. There seems to be less of it to go around, but we seem to be holding our own,” says Frank Kevane, president and CEO of Southfield, Mich.-based Copper and Brass Sales, a division of ThyssenKrupp Materials NA. “The changes in the marketplace seem to be helping us, allowing us to pick up some accounts that normally we wouldn’t have gotten.”
For every market lost or diminished, potential new ones are emerging, experts say. The Copper Development Association is proceeding with its effort to turn a 2005 study documenting copper’s natural antimicrobial properties into new market opportunities. The CDA has been awarded two federal grants to continue clinical trials—one testing the ability of copper alloy surfaces to kill pathogens and impede cross-contamination and another to demonstrate the effectiveness of copper components in HVAC systems in reducing the incidence of harmful microbes.
If these tests reinforce the initial study, “what a different market we might have in terms of hardware for doors, kitchen sinks and hospitals,” Kendall says.
Another market with big growth potential is lead-free alloys, particularly with the approaching onset of a California law virtually banning all lead from plumbing products. Lead-free, as defined by the new statute, will require no more than 0.25 percent lead content in materials such as brass used in plumbing applications.
Norman Lazarus, senior vice president of National Bronze and Metals Inc. in Houston, says the new California law creates a nice opportunity for the red metals industry. “It will be a whole new market opening within the industry, as leaded brasses are going to be phased out. And once the plumbing market gets into it, it’s going to spill over into all sectors of the industry.”
Concast is already primed for the new standards through its launch of Green Alloys, the name for its line of lead-free metals (see sidebar). Concast has been selling some lower-lead options for more than a decade, but is now consolidating its efforts under a single name to better market its product offerings.
Shifting market dynamics have prompted both investment and divestiture among players in the copper and brass market in the last 12 months. In February, Bolton Metal Products Co. announced plans to shut down the brass rod business at its Bellefonte, Pa., plant. The Bolton plant had been purchased only a year earlier from Cerro Business Products. A new player in the domestic copper industry, Global Brass and Copper Inc., which was formed a few months earlier by KPS Capital Partners LP, immediately purchased some of Bolton’s assets.
Also in 2007, Revere Copper Products closed its New Bedford, Mass., plate and sheet mill, citing the high cost of energy and the higher costs of manufacturing in the U.S.
Global Brass and Copper launched its foray into the business in November with the acquisition of the Metals Division of Olin Corp., which included Olin Brass, Olin Metals, Chase Brass and service center company A.J. Oster.
Earlier in 2007, another private equity firm got into the marketplace when Sun Capital Partners purchased Scott Brass. Martinelli says the purchase by Sun Capital has been a nice opportunity for the Rhode Island-based producer.
“They’ve infused a lot of capital to allow us to improve the quality of our products, broaden our product offerings and improve the running of our business through ERP,” Martinelli says.
While the Bolton and Revere moves represented retraction in the industry, one company that has been in pure expansion mode over the past 12 months is National Bronze and Metals. The master distributor opened a third warehouse in Houston in 2007 and has plans for a new foundry in Lorain, Ohio, and an expansion into the copper alloy plate business.
“It’s a diversification. As this company’s growing, we have to look at new products and new markets,” says Lazarus. “With the demise of Revere out of plate, this type of business will be controlled by distributors because there aren’t any local manufacturers. We feel very well-placed to service that business.”
Additionally, National Bronze opened its first office in Paris this month. Lazarus says the company’s intention is to open a warehouse in France within the next six months.
For producers, overseas has become a more reasonable outlet for material in the last year, as the dollar has weakened. Concast Metals also sells material in Europe. “We have a distributor in Europe, and the business is very strong. We’re competitive even in some of the more commodity-type alloys we make,” Barbour says.
Of course, some of that international involvement is the product of necessity, as U.S. manufacturers have fled overseas.
“We’ve seen more metal applications move offshore in the red metals world than we have in stainless and aluminum,” says Kevane of Copper and Brass Sales. “It makes it difficult for American business.”
The outlook for the U.S. economy, already in a state of uncertainty as recession talk intensifies, is further complicated by the fact 2008 is a presidential election year. Executives are watching the results closely.
“We’re in an election year. There’s a lot of interest in the direction the leadership in this country is going to take and its impact on business,” Kevane says.
Red Metals Go Green at Concast
At Concast Metals, red metals have gone green.
The Mars, Pa.-based copper supplier has unveiled Green Alloys, a series of lead-free alloys to meet the growing demand for healthful and environmentally friendly materials. The company is marketing its range of lead-free metals under the Green Alloys banner, complete with a separate website, www.greenalloys.com.
“We’ve been making Green Alloy and Federalloy for years,” says Concast President Al Barbour. “In the past year or so, we’ve had a sub-license from Chase Brass to make EcoBrass in continuous cast form. The purpose of Green Alloys was to come up with an umbrella name for all these alloys that have given applications.”
Embracing the trend for more environmentally and health-friendly materials is a natural fit for Concast, which already produces nearly all of its alloys from secondary materials. But the company’s efforts will be aided considerably by increasing pressure from the federal and state governments.
Leading the way is the state of California, which has pushed through requirements that virtually all lead content be removed from plumbing materials. The measure will go into effect with all items used in construction after Jan. 1, 2010.
“What we’re trying to do is say this material is available if you’re designing a product that must be regulatory compliant from lead-free, recycled content. We’re looking at more engineers and designers and specifiers who are constructing a school or house or commercial building and want to be as green as possible. That’s the purpose of it,” Barbour says.
Concast actually has a leg up on the process. Its Green Alloys and Federalloy products have been part of its catalog for years, growing substantially in the 1990s before flattening out. When it added the Chase Brass line of EcoBrass products, Concast decided a change in approach was necessary.
“We used the name Green Alloys back in the mid ‘90s, but we never put them all together in one grouping. They were mixed throughout our promotional literature and on an available basis. We found we weren’t getting the message out with that approach. If somebody was looking to engineer a product or find out what raw materials choices were out there, it was hard for them to find.”
Concast’s standard Green Alloys are available in aluminum bronze, high tin bronze and Cu-Se-Bi EnviroBrass. Additionally, custom alloys are available in bars, rods, tubes and rectangles.
Federalloy products are a series of lead-free copper alloys created by the Federal Metals Co., Bedford, Ohio, where lead is replaced by bismuth.
EcoBrass is a continuous-cast, lead-free brass material. Concast will market the alloys in bar, rod and hollows for the North American market.
“There’s really no health justification for having lead content in a product, though I don’t think you can say directly that people’s health is being jeopardized by the current product line,” Barbour says. “In general, people want an environmentally friendly, healthy product, and we’re trying to meet that.”
The initial reaction to the Green Alloys rollout has been positive. “I’ve been encouraged over the past six months with what I’ve seen,” Barbour says.
