Soaring world copper prices a challenge for $2b industry

Clark Proctor says the rising copper price has led to increased theft of the metal from schools and houses. Photo / Supplied

Scrap metal dealers and exporters say soaring commodity prices are bringing challenges to an industry that's worth $2 billion a year to the economy.

Copper futures in New York hit a record US$4.63 a pound on Monday.

Clark Proctor, managing director of Metalman, a Manukau scrap metal buyer and exporter, said prices for steel, lead, nickel and aluminium had also seen rallies on the London Metal Exchange (LME).

But he said rising metal prices put pressure on cash flow in his business.

Metalman was forced to pay more for materials, while its margins remained almost unchanged.

"Most people in our industry - if they're honest with themselves - would prefer the copper price to be at lower levels," said Proctor.

Scrap metal is a big foreign exchange earner for this country, with its annual turnover worth almost twice as much as New Zealand's wine exports last year, which fetched just over $1 billion.

Proctor, whose company exports materials mostly to Asia, said rising global prices also led to an increase in the theft of copper from schools and houses, which criminals then tried to sell on to buyers.

The scrap metal industry had been cleaned up over the past five years, he said, but there was still a number of unscrupulous traders.

Last month the Herald on Sunday reported a string of copper thefts, including power lines stolen from between the poles and earthing wires being taken from an electricity substation. Proctor said some scrap metal businesses had also been targeted by thieves trying to get their hands on valuable material stocks.

Venkata Achanta, trading manager at Metal Exchange in Onehunga, said the global pricing situation meant it was a seller's market for scrap metal in New Zealand.

Sellers were going from buyer to buyer, inquiring about prices and selling their scrap materials to the highest bidder, meaning smaller firms like Metal Exchange had to compete fiercely against each other, Achanta said.

He said the company bought its metal mostly from tradespeople and "scavengers".

Increasing demand from emerging economies, especially China, has been blamed for the rising price of copper, which now costs eight times more than in 2000.

US investment bank JP Morgan reportedly bought US$1.5 billion of the commodity in December, 50 to 80 per cent of the 350,000 tonnes of copper reserves.

Since then, copper prices have increased by more than 16 per cent on the LME.

Proctor said he had heard that the investment bank had physically bought the copper, as opposed to a standard futures contract, and was storing it.

"The only fear is, I guess, what time they decide to dump that material on to the market."

This week Britain's Daily Telegraph reported that electricity substations in the UK were being guarded by former Gurka soldiers as criminals targeted the facilities for copper.