Aurubis’ recycled copper business unit is on track to hit its 2013 production targets despite a tightening in availability in copper scrap markets, Volker Pawlitzki, vp for commercial recycling, told Metal Bulletin.

Refining charges for copper scrap have narrowed sharply since April in response to lower refined prices on the London Metal Exchange, as unhedged scrap collectors have withheld material from the market and consumers have had to bid more aggressively for material.

No.2 copper scrap has recently traded at discounts of 5% or less to LME cash prices, compared with typical discounts of 8-10% seen immediately before the sell-off in April, market sources said on the sidelines of the 2nd Metal Bulletin Copper Recycling conference in Dusseldorf.

In some cases, No.1 scrap has traded flat with LME prices, or even at premiums of up to $100, sources said. Scrap tightness has helped drive the premium for copper cathode in Europe to new seven-year highs, market sources said this week.

The availability and pricing of scrap is the tightest it has been since 2009 – when LME prices dropped precipitously in response to the start of the global financial crisis and the supply of scrap froze almost completely – rival copper producers told Metal Bulletin on the sidelines of the conference.

The shortage is sufficiently severe that there are now concerns about whether producers in Europe will meet cathode output targets, market sources said.

There have already been large-scale shutdowns of secondary capacity in China, where a scrap shortage caused by lower cathode prices has been compounded by import bottlenecks associated with Operation Green Fence.

But Aurubis is still able to source sufficient volumes to feed its recycling plant in Lünen and smelter in Hamburg, and expects the recycling business to hit its targets for this year, although it will have to compete more aggressively to secure the material, Pawlitzki said on the sidelines of the conference.

The availability of scrap metal and other secondary feed, including industrial residues and e-waste, has also been eroded as industrial production has fallen in Europe and consumer activity has slowed, he added.

“Still, we get enough material. There is pressure on prices but, of course, you cannot compensate fully for the decreased LME price, and so stocks are still held back by small and mid-size suppliers,” he told Metal Bulletin.

Aurubis consumes around 650,000 tpy of secondary raw materials, roughly 50% of which is scrap metal. The remainder is a mixture of more complex feed such as residues, slags, slimes and e-waste.

The primary copper unit uses about 200,000 tonnes of scrap, while the remainder is consumed by the recycling and precious metals business, which produced 203,000 tonnes of copper cathode in the fiscal year ended September 2012.

While production was steady at 99,000 tonnes in the first half of its fiscal year (ended March 31), the recycling unit recorded a 46% drop in earnings of €32.1 million, primarily as a result of lower refining charges, changes in its feed mix, and maintenance costs associated with a furnace standstill at Lünen.

The group saw a temporary easing in supply as copper prices rebounded back up to $7,500 per tonne, but even if prices remain at more depressed levels, Pawlitzki is confident that eventually some scrap dealers will face pressure to sell to free working capital.

“But this is always a temporary effect; sometimes it is a shorter period and sometimes it takes longer, but finally these withheld stocks will come on the market,” he said.
Aside from this temporary squeeze, the company also faces a more gradual-but-persistent decline in availability, caused by lower scrap generation in Europe, he said.

Weaker industrial production has led to a decline in residues and alloy scraps, such as brass and bronze, while faltering consumer confidence has caused sales of electronics to drop, Pawlitzki said.

Equipment manufacturers are also making more efficient use of metals in their components, leading to an overall decline in the metallic content in e-waste scrap, while lower precious metal prices seen in recent months have also caused crimped supply of these complex scraps from Europe’s so-called urban mine, he added.

“E-scrap availability was good for many years; however, nowadays you see lower metallic content in the scrap and lower precious metal prices, so you have a double effect on the value of the material, and immediately you see a temporal effect on availability,” he said.

“We see that some extra effort is necessary to get material out of every corner, and fortunately the supply with recycable materials still works out – for our company, at least, which is also well supplied with primary raw materials,” he said.

Mark Burton 
mburton@metalbulletin.com
Twitter: @mburtonmb