Wednesday, August 15, 2018
Good morning guys,
As I was thinking about the subject line – copper and tariffs – I realized that the word tariff has come up more in more in my conversations with colleagues about scrap over the past few months. This 6 letter word is quickly replacing many 4 letter words that I use….
All kidding aside, for many of you receiving this e-mail, scrap copper is a major part of your scrap metal programs – if not is volume at least in value. So I wanted to take a moment to share with you what is transpiring in the copper world.
Over the past few years, as some of you may be aware, China, the main driver for most commodities, has been trying to reform their economy and control their pollution. As part of this effort, the government has been making the importation of lower grade materials more challenging to prohibitive. Perhaps since the Olympics in Beijing 10 years back, there have been various curbs from increased duties on items, increased inspections on materials coming into the country to more recently, deeming certain scrap materials, such as low grade coppers (including insulated wire) as ‘waste’ and aiming to prohibit the general importation of these items by 2020.
This past week, China has decided to respond the recent round of US tariffs by applying a 25% tariff on the importation of copper scrap from the US. As this AMM article more eloquently communicates, this will now effectively stop all meaningful trade of copper scraps between the US to China, leaving more material in the domestic market. When I dusted off my old economics 101 book, increased supply to a market that is in ‘equilibrium’ will cause the price to decline if new demand to make up for the new supply isn’t found. Based on my export consumers, they are laying the foundation for new Asian markets, but there is no real alternative market to the Chinese market at this point. So unless mining slows down or another home for this scrap opens up, there will be a potential bottleneck coming our way of scrap copper.
This doesn’t mean a collapse in the price of copper – though we may experience some additional volatility in the LME/COMEX pricing and I would suspect a gradual decline in pricing. However, this is a globally traded commodity, like oil, and as our world economy appears to be chugging, like oil, copper is an integral ingredient to the world economy. They don’t call it Dr. Copper for nothing.
As always, if you have any questions or want to discuss ‘scrap’, give me a shout or an e-mail.
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