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Viewpoint: Copper scrap spreads under pressure

US copper scrap spreads are expected to remain under pressure into 2020 amid continued lower demand from China because of restricted import licenses and quality inspections keeping US supply elevated.

The broad nature of the economic uncertainty across many fronts has put a damper on any expectations for tighter spreads in the first quarter of 2020.

Global trade tensions and scrap import restrictions from China continue as 2020 nears, causing increased supply and lower demand.

China is the world's largest copper scrap importer, so its lower import quotas have severely impacted global trade flows.

The Chinese government implemented a new policy requiring scrap metal importers to apply for licenses to be eligible for quarterly import quotas, leading to a steady drop in imports, customs data show.

China's copper scrap imports plummeted by 49pc on the year to 90,000t in October, while deliveries in the first 10 months fell by 32pc to 1.32mn t.

China issued a quota for the first quarter for copper scrap on tariff code 7404000090 at a total of 7,970t. The latest quota was lower than the previous fourth quarter quota issued in early November at 11,110t.

China also plans to reclassify high-grade nonferrous scrap metal as a raw material. If this change goes into effect, there will be no import restriction for the newly reclassified copper scrap. Implementation is expected to be delayed until March-June next year.

On the trade war front, the US and China reached a phase one deal in middle December that President Donald Trump said will be signed 15 January. A trade deal would help with global economic momentum and boost economic activity, which would increase demand for base metals and possibly scrap. But US scrap exporters increasingly are looking away from China, even if trade issues are resolved.

US market participants anticipate domestic demand to hold for the first quarter of 2020, with a slight uptick to start January with consumers buying a bit more because of the planned reduced inventory at the end of the year.

While scrap dealers are still trying to diversify their international customer base to pick up China's slack, dealers are anticipating additional countries will follow China's lead on stricter import standards.

Most scrap dealers expect the current environment to last for another year.

Bare bright spreads started 2019 at 6-8¢/lb under and fell to 12-15¢/lb under in December as demand waned. The Comex copper price had minimal change in the second half of 2019 with the exception of the uptick in the middle of December, setting a seven month high when settling above the $2.80/lb mark.

Bare bright spreads for 2019 have averaged 10-12¢/lb under the Comex active month year-to-date, matching 2018 spreads but wider than the 2017 average of 8-10¢/lb under. Spreads have been widening since mid-year, averaging 11-13¢/lb under for the second half of the year.

By Mike Hlafka

News No: 8174
Date: 2019/12/31 - 19:36
News Source: Argus Media

Copper  China  scrap  trade  Donald Trump 

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