The Economics of the Copper Scrap Market

- August 16th, 2011

Scrap copper is an important source of the red metal. The use of scrap copper is expected to rise in the coming years, as a necessary means to compensate for declining supplies of mined copper.

Copper is one of the most important materials in our everyday life. Copper scrap represents a strategic source for the base metal.

Copper is widely used in building construction, electrical grids, electronic products, transportation equipment and home appliances. Rising demand for renewable energy, electric vehicles and high-tech products bodes well for copper. The red metal has the highest conductivity of any metal apart from silver, making it an ideal material for the emerging green economy.

Recycled copper scrap contributes significantly to copper supply and plays a behind the scenes role in balancing the copper market. “Copper’s recycling value is so great that premium-grade scrap normally has at least 95 [percent] of the value of the primary metal from newly mined ore,” states the Copper Development Association Inc. When the market is in oversupply and copper prices are low, the availability of red metal scrap declines, in turn increasing the demand for primary copper sources. Conversely, a shortage of copper scrap metal can push the price of copper higher, as evidenced by the impact of the 2020 COVID-19 crisis.

What is copper scrap?

As with many metals, copper is 100 percent recyclable and for the most part retains its many beneficial properties.

Copper scrap material—also known as secondary copper—can be divided into two main categories: new scrap and old scrap. New scrap is copper metal discarded in fabrication and manufacturing processes and is typically considered to be higher-grade material than old copper scrap. Old scrap is copper wire, copper tubing, roofing copper or copper pipe from post-consumer products that can be converted to refined metal and alloys. During the recycling process, these secondary copper materials are smelted in furnaces and then further processed and refined.

Electrical applications require high grade copper, and while newly mined copper is often preferred for this purpose, premium quality new scrap material can be used as well. Recycled copper for use in non-electrical applications, such as plumbing tubes or roofing sheets, is often old scrap.

Scrap metal recycling benefits the environment in many ways—including reducing energy-use, greenhouse gas emissions and landfill waste. The International Copper Study Group (ICSG) notes that one computer contains around 1.5 kilograms (3.3 pounds) of copper while a typical home can contain as much as 100 kilograms (220 pounds). The ICSG says that recycling copper requires 85 percent less energy than primary copper production at the mine level. On a global level, copper recycling reduces electrical energy use by 100 million MWh and keeps 40 million tonnes of CO2 out of the atmosphere on an annual basis.

Copper scrap market

Copper scrap meets about 30 percent of the total global copper demand, according to the International Copper Association. In the United States, copper scrap contributes about 35 percent of the nation’s copper supply. In the European market, recycled copper accounts for about 50 percent of all copper use.

China, which makes up around half of global demand for copper, is also the world’s largest refiner of copper from scrap material. Secondary copper production in China has averaged more than 1.5 million tonnes per year for the last decade or about 30 percent of the nation’s total copper consumption. Much of that secondary copper comes from imports, namely from the United States. In 2018, China reportedly imported 352,000 of high purity copper scrap material from the United States.

As part of its fight against environmental pollution and its ongoing trade war with the US, China placed restrictions on scrap metal imports including copper. The restrictions were a prelude to an outright ban on what China calls “foreign garbage, expected to go into effect in 2020. However, the restrictions were unfortunately timed as the unforeseen COVID-19 pandemic in 2020 wreaked havoc on both primary and secondary production of copper, leading to a supply gap and rising copper prices.

China reversing ban on copper scrap imports

Bloomberg reports that China’s restrictions on copper scrap imports “forced the country’s highly lucrative processing industry to move overseas, where the metal is processed and then usually shipped for use in … China.” While China’s economic recovery has led to renewed demand for copper, the COVID-19 pandemic disrupted primary supply coming from mines in major copper producers such as Chile as well as secondary copper supply lines, including those in China itself.

“Copper scrap trading was particularly affected by the COVID-19 crisis which has led to a shortage of scrap metal,” according to Research and Markets. Jonathan Barnes, senior copper analyst at Roskill estimated that the global trading in copper scrap fell by around 30 percent in H1 2020.

The COVID-induced supply gap along with intense pressure from the nation’s copper scrap recyclers led China to exempt high-grade copper scrap imports from the waste ban, reclassifying them as “resources” rather than “waste”. The Chinese government also “suspended for one year a punitive 25 [percent] import tax on U.S. copper scrap as part of the Phase I trade deal,” reported Reuters.

Copper scrap outlook

Undersupply issues in the global copper market is nothing new. Calls for peak copper have been made for more than a decade. As demand for copper increases at a steady rate in the face of major supply disruptions at the primary mine level, copper scrap will continue to play an important role in the overall copper market.

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