Soaring base metals prices could force consumers to look at ways to reduce costs through substitution, economising and recycling, analysts said on Thursday.
However metals markets would have to remain strong in the longer term in order for consumers to devote more resources to cost-savings through substitution.
"The recent rally in base metals looks transient and 10 months of high prices are not enough to kick-start a renewed resolve in raw materials savings above a broad long-term goal," CRU analyst Tony Warwick-Ching told Reuters.
Last week London Metal Exchange (LME) prices reached multi-year peaks with three-month copper forwards at $3,177.50 a tonne, a near 16-year high.
Adding to pressure were higher premiums for physical metal.
Chile's Codelco, the world's largest copper producer, nearly doubled physical copper premiums for European consumers to $115 a tonne above the LME cash price.
On last Wednesday LME close three month copper was $2,800 a tonne or $1.27/lb.
Warwick-Ching said at current dollar values copper had been well above $1.00/lb and closer to $2.00/lb between the mid 1960s and mid 1970s.
"But is this the start of a 20-year bull run of the kind we saw between the 1950s and mid 1970s? No I don't think so," Warwick-Ching said.
THREE CONSUMER REACTIONS: Analysts said there were a number of consumer reactions to high prices.
"There are three responses to higher prices; substitution, thrifting and recycling," ABN Amro global commodities analyst Nick Moore said.
"Nickel is the market which has seen most substitution with people moving from 300 series stainless (nickel containing) to 200 series," Moore said.
However analysts said substitution was a difficult decision.
Finding a lower cost substitute and then re-tooling meant a significant capital outlay.
"The question is what do you substitute with? Plastics? No Look at the oil price. Steel? Have you seen where steel prices are?" Macquarie Equities analyst Adam Rowley said.
THRIFTING: On thrfting Rowley said that consumers could start to look at ways to use less materials.
"The pressure is going to find ways to use less rather than substitutes. Down-gauging and light-weighting," he said.
Warwick-Ching said: "The big question is who will pay for the research?"
"There is a great deal of pass-through of higher prices as you move downstream through the supply chain. So where does the buck stop?" he said.
Moore said that re-cycling was the most immediate response to higher prices and evidence was seen in rising scrap prices.
"Some products have a higher elasticity of demand - scrap is one of these," Moore said.
Copper scrap prices have risen from 875 GBP in October 2002 to 1,575 GBP some two years later.
Stainless steel solid scrap prices have risen from 225 GBP a tonne in January 2002 to 700 GBP a tonnes in October.
Warwick-Ching also said scrap margins widened.
"This is reflected increased availability of material as merchants dishoard to take advantage of higher copper prices," he said.
He said China was estimated to take half the world's copper scrap.
"Last year China imported three million tonnes of copper scraps according to customs figures. This year it is expected to be 25 percent higher."
"Low labour costs and less demanding environmental regulations in China make it feasible to recycle lower grade materials by hand sorting," he said.
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