In my last blog post, ‘Beat the system: Don’t let supplier lead times slow your progress’ I invited suggestions on what topics you, the readers, would like to see covered in our educational blog series. The most common response we received centred around Price. More specifically, price fluctuations:
“Why does the price of wire and cable change so frequently, and by so much?”
It’s a good question, and a perfectly reasonable one to leave you dumbfounded as you earnestly try to control your project costs.
The answer, quite simply, comes down to Copper!
The reddish-gold colored metal that influences far more of our everyday lives than most (normal) people realise. Not only is copper found in wiring and motors, it’s also used for piping, heating, cooling, industrial machinery, agriculture, water purification, and coins. In fact, all US coins are now made from copper-alloys!
The abundant versatility of copper as a malleable conductor of heat and electricity means it is more susceptible to the forces of supply and demand than most other commodities. The fact is, the price of copper fluctuates all the time and is the main driver for the cost of your wire and cable.
But what ultimately drives this supply and demand, and how can you keep your finger on the global pulse to better manage and control your project costs?
Here’s our fly-by-wire look at some of the economic and sociological indicators to look out for:
The US Housing Market
Let’s face it, you’re not here to read about the trials and tribulations of the US housing market, so I’ll keep this brief. The homebuilding industry accounts for half of all US copper consumption, for use in electrical wiring, roofing, plumbing fixtures, insulation and other components of residential buildings. So, it stands to reason that the economic indicators which influence housing demand, such as mortgage rates, GDP and demographics, will have a profound impact on copper demand, and therefore its price.
Ever-increasing globalisation and urbanization in some of the world’s key emerging markets, like China, India and Brazil, fuels an increased demand for copper. These growing infrastructures demand social housing, industrial construction and transport – driving up the global price for copper.
In many ways, price of copper can serve as a useful barometer for the strength of the global economy. If you are so inclined, you may wish to keep an eye on developments in these emerging markets, so you can better predict copper prices.
Though I wouldn’t recommend it – life’s too short.
Newsflash! A high level of global copper consumption requires an equally high level of ongoing production. What makes the copper price so volatile is the never-ending myriad of factors (some of them inherently unpredictable) that can affect global supply of this ‘dirty gold’.
Changes in the political, environmental and labor landscape all influence the copper price. A significant proportion of copper extraction takes place in South America – notably Chile and Peru who together account for nearly 40% of the world’s annual copper supply. Inclement weather and other seasonal issues routinely affect copper production in these regions. Throw in political instabilities, worker strikes and transportation wrangling’s, and that copper price quickly begins to creep up, up, up!
Ah the other side of the equation – demand. The unstoppable roar of technological advancement has yielded all manner of copper substitutes. In recent years, we’ve seen cheaper alternatives, like aluminum, used to substitute copper in power cables and some electrical equipment. We’ve seen steel and titanium make it into heat exchangers. Nickel, lead and iron now serve as competent copper substitutes in other large industries.
The pace of technological change is slowly but surely reducing the world’s reliance on copper, helping to drive down its price. Predicting exactly when we’ll see a significant shift in this area is more difficult and has the potential to make some very smart people, very wealthy indeed.
Here at WAVE, we’ve seen decades of copper price fluctuations, and have developed a knack for knowing when the best time is to pull the trigger. So, before you make your wire and cable purchases – speak to me or one of the team toll-free on (888) 792-9283.
So, there you have it. The next time you handle a spool of copper wire, consider carefully how you’re clutching the key to global prosperity.
Or don’t. Who’s got time for that?
Until next time, happy spec’ing!