NEW YORK - The discount for copper scrap has widened in recent weeks as the copper futures price remains at elevated levels and business in recycled metal slows to a crawl amid the seasonal summer slowdown.
Yet, dealers expect orders to perk up again in another month or two due to a resurgence of demand in China and an easing of logistical import bottlenecks in the world's top copper consuming country.
I think the old adage 'sell in May and go away' is still very true, maybe not for the terminal market prices because they have risen, but for demand, said Matthew Heitmeier, director of nonferrous metal marketing with Louis Padnos Iron & Metal Co.
Chinese demand has waned due to some congestion issues at the ports, but whether you are China, or North America, or Europe, we are into the summer doldrums season, he said.
Congestion has delayed the flow of material into China's Guangdong province, a major destination for international copper scrap, as all incoming container shipments line up for tighter customs inspections.
The problems with the container inspections have been going on for about six weeks, maybe more, and that's holding up business ... even on this side, said Marc Kaplan, president of Mews Metals Trading in New Jersey.
I have material sold that is awaiting inspection, and I'm being told that I am still a week off, he said.
As a result of the customs crackdown, inbound shipments of copper scrap into China fell by 17 percent in May, and forced the price differentials to COMEX copper to widen due to that lack of business, dealers said.
Spreads for No. 1 Bare Bright copper scrap, regarded as being the cleanest or highest grade of scrap, have widened to a 2- to 4-cent discount to COMEX July copper from a 2-cent discount to a 2-cent premium in March-April.
No. 2 copper scrap spreads were running at 19 to 17 cents under, compared with an earlier discount of 16 to 14 cents.
No. 1 Burnt was pegged at a 7- to 5-cent discount from a 6- to 4-cent discount.
Sterling Smith, an analyst for Country Hedging Inc in Inner Grove Heights, Minnesota, believed congestion will remain, however.
The ports issues are creating logistic problems within China itself, he explained. If you can't move the stuff, you can't buy it, and that will force them to slow down just simply until they caught up a little bit.
Louis Padnos' Heitmeier agreed, saying that until the port problems get rectified, the market will not see the same strong level of Chinese demand that drove the market in the beginning of the year.
But I suspect that that will be cleared up in a few weeks, and then the frenzied buying activity will once again continue because people will know what the rules are, and buy against the rules and not buy against what they assume the rules are, he said. (Editing by John Picinich)