A seasonal demand slowdown, coupled with hesitant buying from China and higher costs for material, have created a "triple whammy" for the copper scrap market, sources said.
"We've officially reached the summer doldrums. China is a reluctant buyer of any item and then you have domestic consumers who typically are slower at this time of year for plant shut-downs ... repairs," said Matthew Heitmeier, director of non-ferrous metal marketing for Louis Padnos Iron & Metal Co.
"You also have relatively high prices in a falling market," he said. These conditions make many domestic consumers want to manage their inventories better and cut back on the cost of holding scrap, he said. London Metal Exchange-monitored warehouse inventories have been in a steady decline since reaching 134,725 tonnes in mid-March - their highest level since June 2004.
LME stocks dropped 2,325 tonnes to 95,000 tonnes on Friday - their lowest level in five months. COMEX inventories were down 64 short tons at 7,417 tons in Thursday's daily report.
No 2 refined copper, scrap comprised of 94 percent copper, was being quoted at around 40-60 cents under COMEX September copper. This compared with nearly 25 cents over the market back in May when prices were seen rallying to successive new highs almost daily.
"Number two copper scrap is at a huge discount to COMEX, and spreads are widening because consumers are all backlogged ... they have plenty of material and the Chinese have basically walked away from the market the last couple of weeks," said one US scrap merchant.
The price of copper futures in New York has given back more than 20 percent since hitting record highs above $4.00 a lb in early May of this year. Some dealers saw this correction, coming at a time when a large backwardation continued to be seen and inventories continued to be drawn down, as a bullish support signal.
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