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March 2014
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Red Metals Suppliers Embrace 'Boring' Outlook

Price stability, decent demand and an improving economy leave the copper supply chain poised for a solid if unremarkable 2014.

By Dan Markham, Senior Editor

In years past, phrases such as optimistic, turbulent, volatile and booming have been used to describe the market for copper and brass products in North America. Tom Bobish, senior vice president of sales and marketing for PMX Industries, Cedar Rapids, Iowa, offers a different assessment of this year’s copper climate. "From my side, it's kind of a boring period," he says.

For red metals suppliers, boring isn't necessarily bad. After enduring a few years of wildly fluctuating prices, supply-demand imbalances, import surges and concerns about the political climate and its effect on the economy, a steady if unspectacular growth year is welcome relief.

While other executives didn’t use Bobish’s words to describe current market conditions, they did echo his sentiments. "I'm not as excited about this year," says ABC Metals President Dan Kendall, whose Logansport, Ind.-based company enjoyed a near-record year in 2013. "I'm looking for stable growth in 2014, somewhere around 2 percent. That's OK, but I’m not going to be shouting from the rooftops."

"Business is pretty good right now," says Farmers Copper Co-President Dick Farmer, whose Galveston, Texas-based service center saw a slight dip in sales last year. "We've seen some good bookings so far and hopefully that will continue."

Overall for the domestic industry in 2013, service center shipments declined 1.7 percent to 258.1 million pounds, reports the Overland Park, Kan.-based Copper and Brass Servicenter Association. Copper shipments actually increased 1.1 percent to 124.2 million pounds for the year, but alloy products dipped 4.1 percent to 133.9 million pounds.

Kendall's expectations for mild improvement, at best, were matched by other supply chain executives. "Purely based on conversations with our customers, we expect 2014 to be a little better than 2013, tonnage wise," says Scott Immell, president of Scioto Metals, Columbus, Ohio. "Where the price of copper is will determine how the dollars go."

The material's price is another factor that has become relatively mundane. In 2010-11, copper endured some hyperactivity on the pricing side, with a 28 percent increase over just four months in 2010 followed by a similar-sized decline in 2011. More recently, the price has been relatively stable. Since last April, copper's price has traded in a narrow band near $3 per pound, with only a 30 cent swing from its low point to its peak.

Though no one knows for sure what will happen with future pricing, the general consensus is for more of the same in 2014. "If I had to guess, it will stay in the low $3 per pound range. Hopefully it won’t move much either way," says Farmer.

"I believe it will stay about where it's been for most of 2014," agrees Bobish. "There's no real driver for a significant price change. I don't think China is gobbling up copper as they have in the past. That, more than anything, caused the huge fluctuation in price."

China's appetite for nonferrous scrap has tapered off considerably, executives report. "I don't think the exodus of scrap to the Far East is quite the big deal it was a few years ago," says Immell, who also serves as president of CBSA. "There was a time they had to depend a lot more on cathode and virgin metal, which was driving up their cost."

North American mill operators confirm there is less foreign demand for scrap. "I don't think the Chinese are as strong in the scrap market as they were in the past," says Al Barbour, president of Concast Metal Products, Mars, Pa. "We haven't had too much trouble getting raw material."

The pricing wild card is the investor class, speculators who jump in and out of the copper market, driving up the price of the material without ever touching it. "The markets today are so driven by traders. A lot of what is going on in the market does not reflect demand like it did 20 or 30 years ago. Commodity traders can manipulate the market very heavily," says Norman Lazarus, senior vice president for National Bronze & Metals Inc., Houston.

The copper market may have lost some appeal to the investor class, however, if the narrow price band is an indication. "I don't know if there's been as much speculation. The stock market got pretty hot at the end of last year, and that may have driven the investment community into those types of options rather than commodities like copper," Barbour says.

Likewise, political instability sometimes sends investors scurrying for commodities, but the tension in Washington has eased. While businesses still grapple with the implementation of the Affordable Care Act and how it will affect business--theirs and their customers'--the partisan wrangling in Congress over the budget and other issues seems to have subsided ahead of the elections this fall. "We don't see anything on the congressional side that's going to change anything any time soon," says Bobish.

Concerns last year about meeting the new rules regarding trade in "conflict minerals" seem to be largely unfounded. The regulations, derived from the Dodd-Frank Act, require suppliers to identify the country of origin of certain metal products. The measure is a response to horrific human rights violations taking place in the Democratic Republic of the Congo. One of the materials that must be traced through the act is tin, a common product in brass alloys.

Immell says the industry seems to be managing through it without much issue. "I think everybody has found their way through the paperwork side. I'm sure it's been a much bigger headache for the mills than it has for distribution. That being said, if you’re dealing with publicly traded companies, you've got to document it."

Like pricing and raw material, the red metals supply-demand balance is also fairly stable. Lead times were slightly longer than normal in the first quarter as order activity picked up following the New Year. "Material's available. The supply side is good. The mills would just like to see us moving more," says Mark Wolma, president of IBC Advanced Alloys Copper Division, Franklin, Ind.

Immell believes the longer lead times are healthy for the industry, particularly since they seem to be the product of genuine activity rather than some artificial supply constraint. "Much as we all want everything tomorrow, I tend to think the longer lead times are a good sign for the market,” he says.

How does the market break down? The New York-based Copper Development Association reports that the North American market for red metal products totaled 5.13 billion pounds in 2012, the last year complete data is available. Wire and cable represented 53 percent of that figure, followed by sheet, strip plate and foil at 16 percent; rod, bar and mechanical wire at 14 percent; tubular products at 13 percent; and foundry and copper power applications at 3 percent.

Those 5.1 billion pounds, similar to the total in 2011, were destined for five major end markets: building and construction at 43 percent; electrical and electronics at 20 percent; transportation equipment at 18 percent; consumer and general products at 12 percent; and industrial machinery and equipment at 7 percent.

Demand from those markets will be largely the same in 2014, with a few minor changes, says Jim Michel, CDA's manager of technical services. The building and construction segment will likely gain some ground this year as housing continues its growth trend and nonresidential construction finally gains some traction after years of lagging performance. However, Michel says, there’s been some retrenchment in the use of copper in architectural applications since the recession. "That doesn’t mean the architects aren’t still specifying and using copper, but the building and construction market has diminished."

In contrast to building and construction, the automotive market has been accelerating in recent years, and copper producers certified to supply the chain have enjoyed the ride. However, Kendall and Bobish point to rising inventories at the auto dealerships, which may lead to a pause in the market's growth rate.
While steel and aluminum have been waging an ongoing battle to be the metal of choice for automotive body applications, copper has quietly gained ground simply due to the changing nature of vehicles. Today's modern cars and trucks come with many sophisticated new electronic options, all of which require sensors and wires containing copper.

Another promising growth area for copper is its use in various health-related applications. Efforts by the copper industry to promote the material’s natural antimicrobial characteristics have yielded only limited results so far, however (see sidebar). "The only application that will make a difference from a pound standpoint is antimicrobial touch surfaces. But we don't see that making a substantial pound difference to the mines or the fabricators any time within the next couple of years," says Bobish.

In a similar vein, some of the no-lead alloys offered by red metals suppliers are gaining ground on the health front. With the Jan. 1 implementation of the Drinking Water Act, which seriously curtails lead usage in wetted surfaces such as drinking fountains, lead-free alloys like those offered by Concast have some opportunity for market share gain.

However, some of that gain will merely recover share lost to substitution, a recurring problem for copper due to its high price compared to other materials. "There's no doubt there’s been some substitution going to stainless in some applications. Our material does serve a purpose, but there’s been a bit of loss," says Barbour.

"I think substitution of copper in general is still a fear. And the issue of theft is still a big problem in the industry," says Immell.

Copper's Antimicrobial Campaign
Sees Slow Progress

Copper's benefits have long been known in the industrial and commercial world, from its distinctive look to its durability to its conductivity. But the most recently discovered trait, its natural ability to kill harmful bacteria, may prove to be its most important attribute.

In 2010, the U.S. Environmental Protection Agency registered copper for its antimicrobial properties after several years of testing. The registration notes that copper can kill bacteria upon its application and throughout the life of the product, a claim no other metal can make. Within 90 minutes of contamination, a copper surface will eliminate 99.9 percent of the bacteria that comes in contact, some of which can live for years on other surfaces.

Turning that characteristic into business activity has been much trickier than copper executives had hoped. Peter Gude, business development director for Olin Brass, Louisville, detailed his company’s efforts to grow the market for its bacteria-killing material at a recent event of the Chicago chapter of the Association of Women in the Metal Industries. He said leading his company’s campaign is "the most exciting thing I’ve done in 35 years in the metals industry."

He also acknowledged that convincing potential customers to install the red metal "has not taken off as fast as we'd like." Still, progress continues to be made, both by his company and its CuVerro brand, and by other players in the industry.

The copper community has targeted the healthcare market for its initial efforts, with limited but varied success. Hospitals have begun to turn to copper products for use in IV poles, bed rails and overbed tray tables, among other frequently touched surfaces. Light fixtures, door handles and elevator face plates are other types of applications ripe for copper's properties.

Gude believes that a persistent campaign will ultimately pan out with healthcare facilities, including hospitals, out-patient clinics and nursing homes. "The hospital market is ROI driven. It’s evidence-based design driven. If copper proves itself in the hospital market, then we can move into other spaces."

Beyond the healthcare sphere, public and private amenities that see large amounts of pedestrian traffic, such as health clubs, shopping mall escalators and public restroom facilities, are also target markets. To cite one example, Olin Brass will provide copper to a manufacturer in South America for use in overhead and vertical hand rails on up to 50 Chilean trains. Though other countries are not bound by the requirements of the EPA, the agency’s standing around the world works to the copper industry's benefit, Gude says.

Copper's price is a major challenge to the industry's effort to promote its health benefits versus other traditional materials. Cost-conscious hospital administrators may not see, or be around for, the long-term benefits of a copper installation. Moreover, the strict guidelines required by the EPA prevent companies such as Olin Brass from making the case for their materials by citing the medical costs associated with an infection.

Copper's tendency to tarnish can also be an issue in exposed settings, which is why Olin Brass is marketing its nickel-copper alloy products in the campaign. Any material that contains at least 60 percent copper has the necessary antimicrobial attributes.

Another more recent challenge is some consumer confusion over the term antimicrobial. A marketing campaign for a glass cover for cell phones and tablets has touted its product’s antimicrobial benefits. But a deeper look, the kind consumers often don’t make, reveals the glass covering only protects the product from bacteria and other microorganisms, not the user. The product, Gude says, "may make no public health benefit claims." But there’s little defense against the public making a public-health inference, he concedes.

Copper, in contrast, is truly and singularly effective, wiping out even the heartiest and deadliest of superbug bacteria such as MRSA, E. coli and staph, effectively and repeatedly throughout the life of the product.

The Copper Development Association has spent the past 10 years working to document and promote the material's antimicrobial properties, so it's not deterred by the longer timeline toward widespread acceptance. "This is a worldwide project. One institution may want 200 IV poles, while another may change out all the door hardware using antimicrobial copper. We see some trends that are catching on," says Jim Michel, manager of technical services for CDA.
 



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Wednesday, November 26, 2014