More and more users of copper in the construction and power industries have been responding to historically high metal prices by substituting with cheaper materials to reduce costs. If copper prices stay high, it seems the push to alternative plumbing and wiring products, like plastics or aluminium, could only increase further.
But some argue that reduced commercial demand could help bring copper prices down and eventually restore its commercial advantage as the best material for most jobs, industry sources said.
"Substitution usually doesn't take effect on a six-month market swing, but if the market sticks around where we have seen prices over the last two years, on average of over $3.00 (a lb), or close to that, it definitely makes people say, 'I wonder if I can use plastic tubing rather than copper,' said Matthew Heitmeier, director of non-ferrous metal marketing for Louis Padnos Iron & Metal Co.
Indeed, many end-users in the plumbing industry have been turning to polyvinyl chloride, or PVC, tubing due to the material's flexibility and low cost, dealers said. "In certain plumbing applications, it certainly has taken the place of copper," said Steven Solomon, president of Solomon Metals Corp in Lynn, Massachusetts.
At the height of the US housing boom in 2004/05, PVC consumption totalled 14.8 billion pounds, with the average price for the plastic trading around $0.52 a lb. Since hurdling $1.00 a lb at the start of 2004, copper has seen its value appreciate more than 300 percent to an all-time record high of $4.16 in May of 2006, while prices of PVC saw their value increase only 30 percent, from an average of $0.46 cents a lb in 2004 to $0.60 cents in 2006.
"At the end of the day, if you're talking about $3.00 a lb, obviously that's just ridiculously high compared with PVC," said Hassan Ahmed, senior research analyst with HSBC in New York. Further copper substitution losses have been witnessed in the cable and wiring sectors, where aluminium has taken on a larger role due to its cheaper cost and equivalent voltage, analysts said.
"Aluminium is a substitute for copper cable in building wire to a degree, but it's more of a North American phenomenon than a European one, and more so in industrial power cables and to certain extent, utility power cables," said Jon Barnes, principal consultant on copper fabrication at metals consultancy CRU. The shift to alternative materials like plastic and aluminium saw overall global copper consumption decline by two percent in 2006, Barnes said.
Despite some shifts to less expensive alternative materials, most industry players expect copper to retain its prevalence among end users due to the metal's superior quality and strong world-wide demand. Better electrical conductivity, coupled with a higher resistance to corrosion and ease of formability make copper a preferred material for longer term end-use, they said.
"It's my belief that substitution talk, if it heats up, will bring prices down, but what may happen in the end is we'll reach sort of this balance point where people say, 'copper is still the best metal for the product I'm going to make,' and just pass the cost back across the board," Solomon said.
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