Copper Scrap Discount Halves on Metal Shortage, Recyclers Say

March 4 (Bloomberg) -- Copper scrap's discount to New York- listed futures has shrunk by as much as half in two months because of a shortage of used metal, according to the Bureau of International Recycling.

The highest grade of scrap now trades about 12 cents below futures listed on the New York Mercantile Exchange's Comex unit, Robert Stein, president of the Brussels-based trade group's non- ferrous division, said in an interview yesterday. That compares with a discount of as much as 25 cents earlier this year.

"They have contracted by 40 to 50 percent," said Stein, who also is vice president of St. Louis-based recycler Alter Trading Corp. "I would anticipate that they could still get tighter."

High-grade electrolytic copper wire scrap, which feeds about 40 percent of world smelters of the metal, tends to become scarcer in the Northern Hemisphere's winter as snow delays collection, Stein said. Record-breaking snows have fallen across the U.S. East Coast this season, including 80.4 inches in Baltimore, 64.5 inches more than normal.

"You've got relatively low levels of production at factories, and that means not a whole lot of scrap is being generated," Stein said. "You have also had some weather issues here in the U.S., and that has really slowed down the whole cycle."

Scrap Demand

Copper for May delivery dropped 0.3 percent to $3.4245 a pound on Comex at 11:17 a.m. London time. The contract has gained 1.9 percent in 2010 after more than doubling last year, helped by expectations of increased usage on a rebound from the world recession. Demand for scrap is strong, especially from China, the world's biggest copper user, Stein said.

"Hopefully the cycle of consumption takes hold on a more sustainable basis and it does turn out to be a good non-ferrous year," he said. "My gut feeling is that it will be. I'm surprised that demand for scrap has outpaced availability as quickly as it did" in recent months.

Scrap's scarcity increased in 2008 as economies slid into recession and Comex copper plunged 54 percent, halting collection of surplus metal.

Aluminum scrap "is probably of even shorter supply than copper scrap," Stein said. Suppliers are struggling to find enough metal after demand rebounded in the U.S. auto industry, one of the main users of aluminum scrap, he said.