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.

In a decaying corner of Detroit, behind a box store, along a trash-strewn scrape of urban ruins, surrounded by trees that are either dead or sag like they wish they were, thick black smoke rises against a gray sky. It's Halloween afternoon, and Michael Lynch, CSO of the utility DTE Energy, in shined black shoes, a dark suit offset by a crisp blue shirt and a bright, patterned tie, is cutting through the blighted patch, following his eyes, and his nose, toward the smoke.

Metal thieves, Lynch knows, burn off the insulation that sheathes the copper wires that carry his company's product—electricity—because often that's how scrap yards want to buy it, without insulation. But also, that's where the name of the company the wire was stolen from would be. At any rate, the sheathing is petroleum-based. Burning it creates an unmistakable cloud that smells like a car accident. Police have made major busts when they happened to see or smell this smoke.

Scenes of Metal Theft

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Recalling the events of that day, Lynch says he isn't setting out to track down a metal theft. He is out in the field with one of his investigators looking for examples of torn-down power lines for a local TV news crew that wants to do a story on metal theft. But while Lynch is in the field, a DTE customer says that thieves have stolen wires off the poles in front of his house, cutting off the power. The customer adds that he thinks the thieves are burning the wire nearby, and he points the way.

The intelligence is sound. Lynch finds a column of flames six feet high rising from a dilapidated cement slab. Tending the fire is a thin man in brown pants, a hooded sweatshirt the color of shiraz and a gray baseball cap pulled low over his goateed face. Lynch is not normally in the field, so he doesn't think about the danger of confronting a man who could be high or armed, or both. Lynch's arrival (and probably his wardrobe—this was no cop) startles the thin man, but luckily he shows few signs of aggression. Lynch begins to ask questions politely. Where'd the wire come from? How much do you have? Where is the rest of it? Where do you sell it? How much do you make?

As Lynch receives answers that range from useful to obfuscatory, he hears a rushing noise below his heels. He looks down and is startled to spot a black hose shooting water along the ground. Lynch grabs the hose and aims it at the fire.

Later, Lynch would put it all together. What he had found was a regular burn site for metal thieves. In fact, it is the perfect burn site, with a concrete surface to burn on and available running water to control and put out fires. Also, the site is surrounded by metal to steal. A nearby communications tower had already been looted so much that, at one point, 911 service was knocked out. Plus, there is a scrap yard nearby where the stolen metal can be sold. If the yard refuses, other buyers are available close by. For 50 cents on the dollar, Lynch says, you can walk up to them with a grocery cart full of any metal, without ID, and sell it no questions asked. The entire supply side of the metal theft economy is within walking distance of the fire Lynch is dousing.

Soon the fire's gone. With only pungent gray smoke crawling away now, Lynch directs the column of water spilling from the hose to land on a tangle of red wires that, from a distance, look like the entrails of roadkill. Even without sheathing to positively identify them, he thinks they're DTE wires. "It's like knowing you're looking at a Chevy," Lynch says, "even though someone took the emblems off." An investigator who is with Lynch calls the police and then snaps a photograph of the improbable scene; the thin man in dark clothes, less than a yard away from Lynch, protests angrily. Lynch, in his smart suit, his preternaturally blue shirt, is wielding the hose and saying something back, but he's not looking at the thin man. He's looking at the metal.

All CSOs should be looking at their metal, devising ways to protect it and contributing to the networks that are being developed to disrupt the black market for metal. The metal theft problem affects not just utilities but all companies that have infrastructure, which is just about all companies. If you have a metal fence, it's at risk of being stolen. If you have construction sites, metal will be taken from them. If you have unguarded rural outposts, they will be raided. No metal is safe.

The Laws of Domestic Supply and Chinese Demand

China needs metal, and junkies need crystal meth. Where these two facts intersect, there's metal theft.

These two facts intersect every day, everywhere. Thieves are risking their lives and others' for metal. Thieves yank down live copper power lines and remove grounding wires from electrical substations, rail lines and wind farms. They snatch wire and plumbing from new housing and business park construction sites, or sometimes from existing houses. In Detroit, The Kronk Gym, a legendary boxing basement where heavyweight champ Tommy Hearns once sparred, was already on the ropes financially; when thieves stripped it of all its copper pipes, The Kronk closed for good. A statue known as a Battle Cross, commemorating the war on terrorism, was snatched from its stand in Yakima, Wash. "Reclining Figure," a 2.1-ton sculpture by artist Henry Moore, was stolen from a museum in England. At auction, the sculpture was worth $5 million. As scrap metal, it would fetch maybe $10,000.

Thieves with a chain and a truck will pull down municipal light poles to get the copper wire out. They'll get a chain saw or a Sawzall or an ax, and cut down a utility pole. If they don't have any of those, they'll climb the pole. In any of these cases, they'll leave behind $5,000 of damage to extract a few hundred dollars' worth of copper. No metal is sacred: Cemetery memorials are snatched, and so are the roofs of churches. Wherever there is metal—copper in particular but also aluminum, zinc, nickel and bronze—there is someone stealing metal to sell it for a little cash to support themselves or their drug habit. For CSOs who have any inventory of metal, it is the most significant physical security concern today.

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."

Where 800 Pounds of Stolen Copper Goes

For Lane, metal theft is problem number one. "Matter of fact," he says, "this morning we arrested six guys in connection with a substation break-in." The men allegedly stole about 800 pounds of copper wire on one of those large wooden spools waiting to be used as electrical wiring at a Duke Energy construction site in Anderson, S.C.

Once a spool like that is stolen, thieves will cut the wire into 4- or 5-foot sections, effectively destroying the product for the owner. At that point, it's scrap. Then comes a crude burning process, usually throwing the wires directly into a fire. Burn sites, like the one Lynch found in Detroit, are reused. Lane says some thieves will coat the wires with oil or other accelerant, load them in a 55-gallon drum and drop in a lit match. Other times, oak wood is put in the bottom of a drum and sections of wire are dropped in like lengths of raw spaghetti.

That's what the six men Lane was talking about were allegedly doing when a patrol officer saw, and smelled, black smoke coming from behind a house outside of town, in an area suspected of metal theft activity. The men were charged with grand larceny, but Lane says finding them was luck.

Imagine if the police hadn't happened onto the scene. This is what might have happened: The thieves would have finished burning the insulation and hosed down the wires, piled the charred copper into a truck and headed for the scrap yard.

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