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Red Gold Rush: The Copper Theft Epidemic

Copper has never been more valuable, or more stolen. Inside the metal theft epidemic and CSOs' struggle to contain the problem.

It's basic economics: Demand for metal is long and supply is short, making semiprecious metals precious. Precious to China, where a growing nation will pay high prices for it, and precious to addicts who need a hit. Investors can't get enough commodity metal, and neither can the impoverished looking for a quick buck.

How Copper Became Trendy

At 5:10 a.m. on Oct. 9, 2003, in West Papua, Indonesia, one of the walls of the Grasberg copper and gold mine collapsed. Two million three hundred thousand tons of rock rushed down into the open pit, killing eight and injuring five. Copper prices spiked.

The prices had already been rising for a few months. It was June 2003 when copper and other metals finally started to show signs of life after falling to historic lows in early 2002, when copper dropped to 65 cents a pound on the London Metals Exchange. But by mid-2003, investors had started talking about a place they called "emerging Asia," which includes China, India and other countries. Most of the focus is on China, with its 20 percent economic growth rate, says Patricia Mohr, an economist specializing in metals at Scotiabank. "Investment funds began to recognize that China was emerging as a major force," she says.

Demand for metal was picking up in Europe and America too, as new construction continued and the military machine warmed up for a coming war in Iraq. After years in the doldrums, the four key base metals—aluminum, copper, nickel and zinc—became hot commodities, with the bellwether red metal, copper, especially hot. After the Grasberg landslide, copper quickly passed $1 per pound.

At the time, Michael Assante was CSO at American Electric Power. He tracked prices weekly and briefed executives quarterly on metal theft incidents and total loss. "We could map the rise in prices to increased security incidents. For the most part it was a direct correlation," he says.

Prices climbed steadily. Then workers went on strike at the El Abra mine in Chile in late 2004, and by 2005, prices passed $2 a pound. But no matter how high metal prices climbed, it seemed, China kept buying. China became the world's biggest consumer of the four key base metals, by a wide margin, virtually overnight, Mohr says. Money flowed toward metal, copper in particular. Investors who once put only precious metals in their portfolio were adding semiprecious metals and creating index funds out of commodities once considered too volatile. Metals became a way to diversify a portfolio, since trends in commodities don't necessarily follow the stock market.

Copper hit $3 a pound by early 2006. China kept buying. The mines and the mills had basically taken the '90s off from creating new mining and smelting capacity because prices were so low for so long and then flagged after 9/11. Without new capacity, the world entered a "deficit condition" where copper production fell below consumption.

"We've had a 100 percent increase in metal thefts year over year," says Mike Dunn, manager of physical security at American Electric Power, based in Ohio and serving electricity in 10 Midwestern and Southern states. At both meetings of the Edison Electrical Institute trade association last year, Dunn says, all anyone could talk about was metal theft. In Tucson, Ariz., metal theft is up 150 percent. In Dallas in 2006 there were 1,500 cases of metal theft reported through August, according to a Dallas Observer article quoting police. Last spring, police in Hawaii opened 15 separate metal theft investigations in two months. Lynch at DTE in Detroit adds, "We had one facility that had 38 [incidents of breaking and entering] in eight months." Thieves keep coming back to the same sites, often rural ones where it will take police a long time to respond. "At these prices, it's worse than ever before," says Theo Lane, a senior coordinator with Duke Energy, which provides electricity in the Carolinas. "We've seen cases where thieves will sell their stolen metal to a scrap yard, then steal it from that yard to sell it again someplace else." Assante calls metal theft "a plague."

On May 12, 2006, copper hit $3.99 per pound, nearly $8,800 per metric ton, a figure that causes Mohr to say, simply, "Extraordinary!"

China finally balked. Some companies there felt prices were too high. Many relied on metal inventory acquired for just this situation. At the same time that China started refusing to pay $4 per pound, construction in the United States slowed as the housing market softened. The Federal Reserve held steady on interest rates, and Mohr says that investors are speculating rates might start dropping again in 2007. Investors started cashing out. Copper prices started to fall, and no one was sure how fast and how hard they would come down.

Not too fast and not too hard, it turns out. Seven months after the $3.99 peak, copper remains above $3 per pound (at $3.03 as of Jan. 8), and Mohr says that the growth in copper prices has slowed, but zinc and nickel remain at record highs. China, Mohr says, is not going away. She believes copper will be lower in 2007, but adds, "even if copper falls to, say, $2.50 per pound, that's still historically very lucrative."

Even if prices drop, metal theft will remain historically high. Thieves have caught on: There's metal everywhere and much of it is, understandably, unguarded. Aluminum guardrails. Brass fittings. Bronze plaques. Aluminum siding. Sprinkler fittings. Catalytic converters on church vans. Bronze urns. Storm drain grates. Street signs. Copper downspouts. The nozzles on Houston's fire trucks' hoses. All of those have been reported stolen. You don't notice how much metal there is for the taking until it starts getting taken. And, Lane says, "There's no end in sight."