Posted 15 October 2012
While the price of copper has been threatening to spike for the last 5 years, with rumours of shortages and the increase in demand from the emerging markets, it is in these last 12 months when we have witnessed an unprecedented surge in the growth. Copper price reached its peak in May this year when it rose to over £4,500/ton. The price of copper has been driven higher by numerous factors, including growth in demand, limited stocks, and labour issues by some of the world’s largest producers.
This clearly has a significant effect on the cable industry. Some cables are less affected than others, however simple cables such as; panel wiring, twin and earth, flexs and armoureds have relatively high copper content compared to the time and processes involved in manufacturing them.
Let’s take the example of a 6491X PVC Conduit Wire. This may have a cost make up of 65% copper, 5% PVC and 30% to cover production, packaging, distribution and profit. Assuming of course that all the other elements remain the same, it is easy to see that if copper doubles in price, the cost of the cable will increase by 65%. More complicated cable with multiple cores or pairs screens, braids or a special insulation or a jacket material are less affected by copper fluctuations.
Reasons for this unprecedented price rise can be attributed to the emergence of the Asian markets, and their vast demand of both natural resources and cable. The construction boom in this region has increased the amount of copper used in everything from buildings to electrical equipment.
The recent 25-day strike and resulting production losses at the Escondida mine in Chile has also affected price. It costs approximately $2/kg to extract the raw metal from the earth, with further refining costs and drawing costs being added to the price. Recently there has been considerable unrest within the mining workforce who want their earnings related to the world copper price, resulting in large production losses.
A closer look at the statistics makes for more encouraging reading. Although consumption of copper has outstripped supply for the last three years, last year the gap narrowed considerably. Research by the International Copper Study Group indicates that next year, based on a number of factors, supply may begin to exceed demand, allowing a small surplus to build up.
The increasing use of copper in the emerging markets has put supply under considerable strain. It is thought that more that 95% of all copper ever mined and smelted has been extracted since 1900. This demand continues unabated, with demand for copper currently increasing by 575,000 tons annually and increasing. It is thought that by 2015, many of the largest copper mines could be exhausted.
It is important to see the longer term picture in the copper markets, and take into account that the growing demand in emerging markets such as India and China has been offset by the decline in demand in the US and Europe as production moves to the Far East.
Analysts are also suggesting that as copper prices have risen, consumers are starting to substitute other materials in its place, or become more efficient in their consumption. The real irony is that for years, copper has been mined bountifully, due to its low price and plentiful supply. This made looking for substitutes uneconomic, but this is starting to change. Some cable producers are already supplying copper coated aluminium (CCA) with or without the customer’s knowledge, whilst plumbing applications are increasingly moving towards plastic.
It is unclear which way the market will turn in 2007. There are certainly arguments on either side. The advice from FS Cables – buy cable as and when you need it, but leave the speculating to the London Futures Exchange. If you have a medium or large short-term need, it may be worth buying it in one go - fixing your cost and making the most of any quantity discounts on offer.
We want to help where we can, and be as ‘flexible’ as possible! We would be happy to discuss a fixed pricing agreement with you, where cable can be called off over a pre-agreed period of time. This means you don’t have the problems of storage but do benefit from consistent prices. Please call us for a chat about these possibilities.