Wild Copper Week

As I sat down to write last week's post, copper was sitting at US$6854/t, stayed there more or less for 3 days and plunged 10% by the end of the week to 6242/t.

From a customer point-of-view, I hear the cheers as you all expect your bronze bushings, aluminium bronze gear blanks and brass extrusions to plunge in price. Certainly, that will happen, but it is not quite as immediate as many people think it will be. The mechanisms and behaviours behind radical copper price changes have a strong effect on bronze foundries who mostly buy copper from scrap dealers as raw material for their production.

In our case, we purchase a significant proportion of the copper scrap available in New Zealand. For the most part, what we do not buy gets sold to China. The Chinese have been purchasing scrap copper in large volumes which has had the undesirable recent effect of pushing up raw material costs as a percentage of the index prices and therefore the cost of bronze and brass. In effect we are competing with the Chinese for the material. This has become more prevalent in the wake of the financial crisis which has seen a devaluing of the US dollar against the Yuan which has been artificially held up by the Chinese central monetary authority. The Chinese have then turned to raw commodities as an investment and this has caused the resurgence of the commodity prices in the scrap metal market. This could explain some of the disparity between the huge copper stocks worldwide and the continuing hike in price.

In the present climate, it will be very difficult to get our raw material suppliers to sell us any goods at prices in proportion to the index prices, because they will want to hold onto any material they have in the hope that the prices will recover and they can profit at a later date. There is always material available at a price, but it has the effect of delaying any commodity index falls to the customer.

This is why we use copper averages to calculate pricing. Over time, it delivers fair value to all parties in a strong business partnership - just the way we like it!

Matt Toohey