The price of copper is on the rise and so are the expectations for the red metals market in 2018.
Last May, the cash price for copper on the London Metals Exchange reached its lowest point for the year at just under $5,500 per metric ton. Fast forward nine months, and the copper price has jumped 28.6 percent to $7,030 per metric ton. Many in the industry expect to see that trend continue this year.
“Everybody’s got good expectations for 2018,” says Garret Herringdon, president of the Overland Park, Kan.-based Copper and Brass Servicenter Association. “The economy feels like it’s getting stronger, there is more movement within the different industries; you just have a feeling that everything is moving on a positive note.”
For distributors, things really started to improve in the second half of 2017. According to CBSA, U.S. service centers shipped 115.3 million pounds of copper products last year, up 2.7 percent over the previous year.
Martin Little, executive vice president at Concast Metal Products, thinks a big part of copper’s turnaround this past year had to do with improvement in the energy sector. “Like everybody else, when oil and gas suffered a downturn, we realized how much of our business was associated with oil and gas,” he says. “When oil prices plummeted, it affected a lot of other businesses.”
The Mars, Pa.-based producer of specialty copper alloys sells heavily into the distribution sector and wasn’t aware of just how much of its product went to the oil and gas industry until sales started to take a hit. “Close to 20 percent of our business was affected,” Little says. “That’s all come back, and 2017 was the year that it all came back.”
Tom Bobish, vice president of operations at Aviva Metals, Houston, says the company had a very good year in 2017 and much of that was due to the energy sector’s rebound. “The improvement in the oil industry was big for us. 2016 was a terrible year for oil and gas, but as oil marched back up, drilling started, exploration started, adding wells. And with those wells, you need copper alloys.”
The other thing that helped Aviva last year was the rising copper price. Although dramatic increases could be bad for producers and distributors alike, Bobish says the steady, gradual rise in prices last year was beneficial. “In the beginning, customers stand back and they’re afraid to order because they think the price is going to come back down,” explains Bobish, whose company dropped its previous name, NBM Metals, during a rebranding last year. “And when it did work its way up over much of 2017, customers realized I better get an order in now because next month it’s going to be higher. Certainly, that helped our industry too.”
Steady demand in the key end markets for copper should keep the price strong throughout the year. Aviva anticipates demand from its customers in the oil and gas, aerospace, and electrical markets to increase between 5 percent and 15 percent this year, according to Bobish.
And there are positive outlooks for other major copper end markets as well. Dan Kendall, president of Logansport, Ind.-based ABC Metals, expects steady business from the residential construction, nonresidential construction and appliance sectors. “As we go to the Internet of Things, the wiring that’s in buildings has to be a superior quality, but also the components that go into the walls for wireless connections have copper in them as well,” he says. “So, when it comes to electrical, they need good connectors and that’s a positive for us. We see that as an opportunity.”
The rising copper price is a welcome sight for producers of red metals, who are eager to move on fully from the doldrums of the past few years. However, distributors are mostly concerned with the price of copper remaining steady. “If it stays stable, we can manage our inventory a lot better and plan for the future,” says Herringdon, who is also the general manager at Southern Copper and Supply Co., Pelham, Ala. “The volatility of going up and down, it makes it difficult to plan accordingly. When you have differences of 3 to 5 percent a month, that’s a big swing.”
Some ways distributors are protecting themselves against price volatility are through hedging, as well as maintaining a well-stocked, efficiently run inventory.
“I don’t think a lot of folks in the copper market understand the difference between true hedging and firming up prices,” says Kendall. “Firming has you protected on one side of the market. But if you hedge, you’re protected if the price goes up or down. Our hedging allows us to stay neutral with the market but still offer prices that track the market. I sleep better at night knowing that when I walk out and look at millions of pounds of copper, I don’t have to worry about my inventory.”
Effectively managing inventory is another way copper distributors are staying ahead of price swings. “We have a large inventory by design; it’s extremely efficient and professionally run,” Little says. “We’re able to stabilize markets for our customers because of that inventory. We protect their inventories by not adjusting prices on a daily basis or making things difficult on a daily basis. I think customers come to appreciate that.”
Mergers and acquisitions are another potential obstacle, and distributors of copper strip and sheet are eyeing one potential sale very closely. In February, nonferrous metals producer Hamburg, Germany-based Aurubis announced it was in advanced negotiations to sell its flat-rolled products segment to another German company, Wieland-Werke AG. The segment, which includes a production site in Buffalo, N.Y., produced approximately 230,000 tons of copper and alloyed products last year. With that much volume, any potential disruption or change to the business model could affect the market as a whole.
“Aurubis is one of the largest commercial copper and brass suppliers, and so to have a different player makes me, as a distributor, wonder what the implications will be for the other large producers in the U.S.,” Kendall says. “And we will have to see how Wieland operates. Will they be vertically integrated, or will they be operating as a metal producer and leveraging the distribution chain? Will we continue to be a supply chain partner, or will we be viewed as just an outlet?”
Despite these potential obstacles, producers and distributors alike have high hopes for the copper market this year. Beyond that, Kendall sees plenty of opportunity for distributors who stay ahead of the technological curve and make investments now to serve the copper markets of the future. The increasing use of electrical components in the auto industry is one area ABC Metals is keeping an eye on.
“I’m looking at that technology and how that integrates,” he says. “Because as the cars become more technical, the need for copper to conduct the signals that are needed to be the intelligence in that car becomes ever more important. We believe enough in the technology that we invested in a double loop slitter, and that’s one of the ways we’re investing in the future.”