Global copper granule scrap supply surges

Global copper granule supply has surged this year as increasing numbers of scrap dealers have invested in equipment to process cables that are no longer accepted in China.

China imposed a ban on imports of "category 7" scrap metals from 31 December 2018 as part of an environmental policy designed to reduce pollution. The banned category includes copper cable and motors, and the import restriction has halted the flow of cables to the world's largest scrap metal consumer, leading to rising stockpiles in Europe and the US.

Many scrap dealers have invested in granulators — also commonly known as "chopping lines" — to process the cable that was previously exported to China. Granulators are "popping up like mushrooms, even small scrap dealers are investing €400,000-500,000 [$450,000-560,000] in granulators", a European scrap dealer said. "They think it's the future."

One of the key drivers for the investment is the speculation that China could re-categorise granules as a raw material, instead of scrap or "solid waste" as per the Chinese central authority's current definition. If this re-categorisation takes place, there would be no restriction on China's imports of granules.

But some market participants have expressed a worry that the ban on scrap imports could be reversed, which would allow the sale of copper cables to China to restart, rendering the significant investment in granulators redundant.

Granulators or chopping lines shred copper cables to remove the plastic casing covering the wire and process the copper wire into granules. There are two types of granules — #1, also known as clove, contains 99pc copper and is unalloyed and uncoated, while #2 granules, also known as cobra, have a minimum 97pc copper content with other metal impurities at 0.5-1pc. The latter account for the majority of global granules supply.

As a result of the surging supply, which has far outstripped global demand, many suppliers have complained of rising unsold stocks in recent weeks.

Several dealers warned that granule supply is near saturation point as demand growth is lagging behind. Granules only account for one-third of copper refiners' feedstock, with Birch/Cliff scrap accounting for the balance.

"We have seen an abundance of chops [granules] both #1 and #2 in the market, however at the moment the majority are struggling to find a home," a US dealer said.

"You can buy them at every corner in Europe," the European scrap dealer added. "There is hardly any margin in granules."

Prices for #1 granules are similar to bare bright — Millberry — because of the higher copper content, but discounts for #2 granules to the LME and Comex contracts are widening as supply grows.

Copper cables are priced at 38pc of LME copper contracts while the cash spread for #2 granules is at 88pc, according to a number of dealers. This is below the delivered Europe bare bright cash spread of 96-98pc, according to Argus' weekly price assessment yesterday.

In addition, copper cable processors have to pay to dispose of the plastic casing, which further adds to the processing costs of granules. It costs €100-200/t to dispose of the plastic in Europe, the European dealer said.