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Mar 2013
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Red Metals ‘Plodding Along’

Slow and steady may win the race, but producers and distributors of copper and brass products are hoping new construction gives the market a boost later this year.

By Myra Pinkham, Contributing Editor

Demand for copper and brass products has been “plodding along” for the past couple of years, improving at a frustratingly slow pace, say red metals producers and distributors. They forecast sales in 2013 that are comparable to 2012, unless the market gets a long-awaited boost from improved construction activity later in the year.

Some suppliers have done better than others, depending on the end-use sectors they serve, but in general the market continues on a slight upward trajectory, says Bruce Seeger, president of Seeger Metals & Plastics Inc., Toledo, Ohio. Slow growth is better than no growth, adds Kon John, marketing director of Olin Brass, Louisville, Ky. “The growth might be very slow, but at least it’s improving.”

Coming off the usual bump in demand in January and early February, the copper and brass market has become “increasingly interesting,” says Tom Bobish, senior vice president of sales and marketing for PMX Industries Inc., Cedar Rapids, Iowa. Some end-uses are improving, while others show signs of weakness. Part of that is due to the uneven recovery of various industries since the recession, and part is due to substitution of competitive materials such as aluminum and plastics, he notes.

John Mothersole, senior principal economist at IHS Global Insight, Washington, D.C., says U.S. copper and copper alloy consumption has been gradually trending higher since early 2010 and was up about 1 percent year-on-year as of last month. But depending on what happens with the economy, that trend won’t necessarily continue. “There could 1 to 2 percent softness through 2014,” he predicts.

The Copper & Brass Servicenter Association, Overland Park, Kan., reports that service center shipments of copper and copper alloy products totaled nearly 261.5 million pounds in 2012, down about 1 percent compared with 2011. While copper shipments improved 4.4 percent, alloy shipments declined by 5.4 percent.

It’s not that business is bad under current conditions, executives say, it’s that business is inconsistent. “The first quarter of last year was a record quarter for us, but demand tailed off as the year went on,” says Martin Little, executive vice president of sales and marketing for Concast Metal Products Co., Mars, Pa. “Even now it is a day-to-day phenomenon. Some days are very good, but others aren’t. This seems to be a whole new business environment. We wonder when it will end or if this is, as some say, a new normal.”

“There have been a lot of false starts and a lot of uncertainties,” says David Martinelli, executive vice president of Scott Brass Inc., Cranston, R.I., who maintains that a lot of that uncertainty could be lessened by congressional action. “Fears about the fiscal cliff were responsible for a lot of the slowness in the fourth quarter,” he says.

“The fiscal cliff deal was just a Band-Aid on a gaping gash, just delaying the inevitable,” Little adds. “I wish the legislators could get together and decide things for the good of the country. It is very disappointing.”

While incomplete, Congress’ January vote to avert the fiscal cliff has helped the market find some degree of stability, says Scott Immell, president of Scioto Metals Inc., Lewis Center, Ohio, and CBSA president. “While it didn’t address all of the issues, at least we now know what the playing field is, and that allows red metals companies to make the necessary adjustments.”

Some observers point to improving economic indicators for 2013. Many expect further strengthening of the automotive market, one of the largest consumers of red metals. In addition to the increased build rates, use of copper and copper alloys by automakers continues to expand as they add entertainment and safety-related electrical components to new vehicles, says Bob Weed, vice president of OEM applications at the Copper Development Association in New York.

Compliance with the upcoming, more stringent fuel efficiency standards could be a mixed bag for copper suppliers, however. Experts note that more copper is used in electric and hybrid vehicles, though other parts, such as auto wire housings, are being converted to aluminum in an effort to save both weight and cost.
 
Joe Mallak, president and chief executive officer of Hussey Copper Ltd., Leetsdale, Pa., points to a slight uptick in the use of red metals in electrical equipment and building and construction, especially as the East Coast rebuilds after Hurricane Sandy.

After bottoming out in 2008-09, new-home construction is finally gaining traction. The National Association of Home Builders is forecasting that after rising 25 percent in 2012, housing starts will increase another 22 percent in 2013 and 30 percent in 2014. That’s good news for the copper plumbing market, though it may heat up the competition with makers of plastic plumbing products. New homes also mean new sales of appliances and HVAC equipment that contain copper controls.

Demand for ammunition and ordnance also has grown, says John at Olin Brass. “Ordnance is unaffected by the economy because of the conflicts in the Middle East. Also, recreational use of firearms has increased.” The current debate over gun control legislation is prompting people to stock up on ammo now, in case Congress restricts purchases later.

Calls for improvements to the nation’s electrical infrastructure hold promise for greater sales of copper and brass strip, sheet and plate, Weed says, as well as bar and copper wire in electrical distribution equipment such as transformers and circuit breakers.
 
Some suppliers are making concerted efforts to expand their presence in growth markets such aerospace, energy and environmental. Concast, for one, is promoting a line of “green” products, though Little admits the market has been slow to accept these special alloys. “Even with the environmental and health concerns with lead, it is hard to get people to pay extra for this product,” he says.
Should Congress allow the sequestration cuts to kick in March 1, it could hurt spending on such big ticket defense items as jets and jet engines, Weed says. “My bigger concern, however, is what will happen to the general economy if the sequestration cuts go through. Copper and copper alloy performance in 2013 and 2014 will be more tied to the general economy than any decision the government makes on specific budgetary items.”
Uncertainties about the future have resulted in a prolonged red metal inventory destocking cycle, says Mothersole at IHS Global Insight. If the economy continues to recover, there could be strong restocking. If the recovery is muted, restocking will be modest, as well.
With mill lead times as short as four weeks, and depot stocks largely available, there isn’t a lot motivating service centers to stock up right now, says John D.
McMurray IV, vice president of McMurray Metals Co. Inc, Dallas.
Distributors are taking care to make sure they have enough product on their shelves to meet customers’ needs, says Bob Farmer, co-president of Farmers Copper Ltd., Galveston, Texas. This is especially true now that it appears the market is returning to a more normal pace following the slowdown late last year. “We are starting to restock more quantities across the board to ensure that we have the right mix of products available for immediate shipment,” he says.
Relatively stable prices also have helped take some of the risk out of buying. While still bouncing around a bit, copper on the LME has been trading in a relatively tight price range, Mothersole says—very different from a few years ago. Copper prices went from below $7,000 per metric ton in 2010 to a record $10,000 per ton in early 2011, before falling back to $7,000 per ton later that year. In comparison, copper is now trading between $7,800 and $8,200 per metric ton.
“2013 will be an interesting year for the copper market,” Mothersole predicts. “We will see steady improvement in demand volumes, but that improvement will not be spectacular.”

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