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Skyrocketing copper prices are driving thefts and material substitution

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Thefts are the dark common thread weaving copper fabricators and their customers together, as both are vulnerable to substantial loss of material. And while the thefts themselves are becoming a huge problem, equally troublesome is the lack of standardized theft-prevention methods that make policing extremely difficult.

"On the industrial side, it's not as common an occurrence as people think. It's still a difficult task to accomplish. But when there's money to be made, greed is a powerful motivator. It can fill up a truck in a hurry," a buyer for a wire maker said. "The single most important factor is price."

A buyer at a second wire manufacturer agreed. "The higher (the price) goes, the more vulnerable you become. A truckload can go for a couple hundred thousand dollars to half a million dollars very easily. The higher the cost of copper, the more vulnerable you are to thievery. We do not like to see copper at $3 a pound, but we can't control it so we have to deal with it," he said.

Red metal prices, which had spent decades hovering around the $1-per-pound mark, went on a historic bull run in 2004 that over the next few years saw copper breach the $4-per-pound level and remain above $2.50 most of the time since.

The new price equilibrium has attracted an unsavory element to the industry, with most fabricators acknowledging that they have suffered some isolated instances of employee theft. While the volumes tend to be small and the incidents typically end in dismissal, the presence of internal theft is compounded by greater external threats.

"We're very careful with the truckers we use; they're usually the same people every day," the buyer for the second wire manufacturer said. "A very sophisticated theft could happen, but they'd have to have pretty good documentation to pick it up and steal it."

Carrollton, Ga.-based Southwire Co. recently suffered a $500,000 theft when three drivers bearing legitimate-looking paperwork loaded 131,000 pounds of copper rod onto their trucks. The trucking was arranged by a freight broker, who covered the cost of the loss, but the case stunned the copper fabricating community, prompting companies to re-examine their own security protocols, from on-site security to the level of documentation fabricators require from truck drivers who pick up material.

"In recent cases, it's been so organized that I think it's probably being put on a container and shipped overseas somewhere or down across the border into Mexico," the first wire manufacturer source said.

And while the thefts make wire makers nervous, there currently is no economically viable alternative to copper in electrical wiring applications. While some transmission cables can be made out of aluminum, copper-clad steel or lead, the downsides to these materials often far outweigh the cost savings.

"It could always happen, but the alternatives in electrical wiring cable really aren't there. Copper is still the main commodity that will be used even if it goes to $5 per pound. It's not that easy to replace, especially with specialty products. You have to have certain amperage capacity in cables; you can't carry as much current with steel cable as you can with copper-that's why there are not a lot of obvious alternatives to switch to," the second wire maker source said.

The main drive behind substituting away from copper tends to be higher red metal prices, but metal end-users consistently suffering from thefts see an added benefit in switching to a cheaper alternative when it comes to copper tubing.

There are some natural hurdles to a substitution decision for manufacturers. "A substitute would take quite a bit of potential capital investment. I would think customers or fabricators could avoid capital expenses by changing the way they do their processes and procedures and by tightening things down and making their property more secure," a buyer for a fabricator said.

Nevertheless, sources in the copper tube industry expect to see a higher rate of substitution as the U.S. economy exits the recession and demand for copper product recovers.

"We're seeing substitution currently in the neighborhood of 2 to 3 percent per year. That substitution rate is going to increase to where three years down the road we'll see the rate move to about 4 percent per year. Our visibility tends to be pretty good in terms of what's going to happen with different technologies," Edward Rottmann, vice president of sales, marketing and product development at Luvata Oy's tubes division, told AMM on the sidelines of Metal Bulletin's 23rd World Copper Conference in New York.

"In the global ACR (air conditioning and refrigeration) market, the amount of aluminum substitution that's taken place-replacing copper-is still below 5 percent," he said. "We're coming out of a recession, so we'll see the total demand for copper continue to grow from the lows we saw in 2009. However, the share that's being taken by aluminum is going to grow from the zero- to 5-percent range to 5 to 10 percent."

Substitution and theft are both sore points for copper fabricators, but producers say that the biggest problem facing the industry is the ease with which thieves can dispose of stolen goods at a recycling facility.

"There's always the dark side of the scrap world that operates in that manner. Maybe if they don't know where the material comes from they don't want to know, and they don't ask questions. They think they're not liable for that, or they don't care," the first buyer said.

"It's very difficult to control all of this, because scrap comes from so many different sources," the second buyer source said. "The dealers are legitimately trying to do the best they can, but it's not an easy thing to police-it's very difficult."

Fabricator sources have cited various material theft-prevention efforts pioneered by the Institute of Scrap Recycling Industries (ISRI), but they say the programs aren't mandatory and rely purely on member participation.

"ISRI is trying. But the network and policing are only as good as its members. If the membership and all the scrap dealers are honest, there wouldn't be a place to sell stolen scrap. But as they say, a few bad apples spoil the basket. Ethics and honesty have to go hand in hand to make something like that work," the first buyer said.

TATYANA SHUMSKY


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