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Base metals: The sharp rise in the cost of energy has fuelled aluminium prices

The price rallied almost 30% since November, writes Jack Farchy

Alcan Cable will increase prices by approximately 8.7% on the following aluminum wire and cable products effective Monday, October 18, 2010:  All FeederPlex®, XHHW and USE products  All SEU and SER products

LEON WESTGATE:  Yes - demand destruction is always a concern and goes hand in hand with substitution.  With copper a lot of these - or low hanging fruit - the easy substitution has already taken place - around 2005, 2006, and 2007.  As a rule of thumb it's about 1% to 2% of the market normally, is lost to substitution which increases to around 3% or more on the back of a period of high prices.  Looking at the reasons for substitution, the area that seems most at risk is copper tubes which are about 11% of the market - in particular the air conditioning elements of that.  We've already seen substitution for aluminium and also people being clever with how they use the copper - in terms of the shapes of copper that they use in air conditioning units having a greater surface area but for less metal.  The other key is scrap supply - this has increased significantly and it enters the supply chain in two areas - one it displaces either concentrates or blister and a secondary production which accounts for - we expect it to account for around 20% of refined production of total required production this year from around 9% to 12% back into the middle of the last decade.  The other bit where scrap is actually the key is direct use of scrap where that displaces cathode and is essentially more akin to substitution.  That's much harder to pin down, but when high prices appear - you will get a combination of demand destruction, substitution and increased use of scra

Alcan Cable will increase list prices on the following aluminum wire and cable products by 9% effective Tuesday, February 1, 2011:FeederPlex® XHHWXHHW and USE SEU and SERMC and MC with Jacketing

Alcan Cable will increase list prices approximately 12% to 15% on the following aluminum feeder cable products effective Monday, January 9, 2012:

The difference between the prices of copper and aluminum is now enough to cover the costs of retooling some manufacturing processes and pay for the extra aluminum it takes to conduct the same amount of electricity as copper

Record prices for copper will not lead to large-scale use of cheaper alternatives by industrial consumers because copper retains clear technical advantages in wiring, French cable group Nexans (NEXS.PA: Quote) said on Wednesday. Benchmark copper prices CMCU3 on the London Metal Exchange breached the $10,000 mark for the first time last month after a rally driven by Chinese demand and tightening global supply. This has led some manufacturers and distributors to warn of a shift towards less expensive substitute materials like aluminium and zinc, while in France a surge in copper theft has led rail and power firms to consider alternatives. [ID:nLDE71E1Q1] [ID:nLDE6BF1HO] Nexans was increasingly using aluminium conductors and developing other alternatives but did not see a big shift away from copper, Chief Financial Officer Frederic Michelland said. "If you reasoned in purely financial terms, copper would have been abandoned a long while back in favour of aluminium," he told reporters at the group's head office. "Overall, copper still has a fundamental attractiveness that should last for some time to come." Substitution had remained limited in the past few years, representing between 450,000 and 600,000 tonnes annually compared with a global market of some 19 million tonnes of refined copper, Nexans executives said at a briefing on copper. Aluminium had claimed the largest share among copper substitutes and Nexans was notably developing use of copper-clad aluminium as a product that resolved some of the conductivity snags of aluminium. However, the cost advantage was not enormous and there were still technical drawbacks, Michelland said. "There is not yet a miracle (substitute) product," he said. Nexans, which supplies cables for sectors like energy, construction and construction, is one of the world's largest private consumers of copper, having used around 450,000 tonnes of the metal in 2010.

Since 2001 the price of copper has gone from less than $1 per pound to about $4 per pound on the Comex division of the New York Mercantile Exchange (CME). In response, looters and scavengers nationwide are stealing copper where they can. Within the last three years, copper thieves have disabled 130 cell tower sites across 17 jurisdictions in eastern Virginia and North Carolina. They stripped the wire from an airplane control tower in Ohio, endangering in-flight communications. They scuttled the irrigation system of Pinal County, Ariz., causing $10 million in damage and ruining a harvest. In Indianapolis, gutted refrigeration systems cost the state's largest food bank $400,000 in spoiled rations. In Jackson, Miss., thieves stole the copper from five storm sirens, which then failed to warn residents of an incoming tornado. In Kansas City, Mo., power outages due to stolen wire caused a credit union to freeze bank accounts, while a separate group allegedly used a backhoe to excavate 18,000 feet of backup power lines worth at least $500,000. In western Nevada, bandits on four-wheelers took out signal and control systems from Union Pacific (UNP) and Amtrak rail lines. In Minneapolis and Cincinnati, police say gangs use foreclosure lists like treasure maps, looting pipes from hundreds of homes, some of which exploded from gas leaks.

It's one of the first times the federal Clean Air Act has been used to prosecute air conditioner thieves in Georgia, but the case has given some local law enforcement agencies hope that the stiffer penalties do what new laws and declining copper prices have not - stop people from stealing copper.

Separately, in Zhejiang, a source with the subsidiary of key Chinese nonferrous metals trader Wanxiang Group said China was expected to add 800,000-900,000 mt/year new copper capacity this year. "It's big enough to offset the impact from the outdated capacity shuttering," the source said. In South China, a source with the subsidiary of a Chinese copper smelter said: "Before the state's announcement, some companies with outdated facilities had already ceased using theirs, so we see minimal impact from the shuttering news." In another development, Chinese copper industry sources said the recent talk in China about using aluminum to replace copper due to rising copper prices would not have a significant impact on the copper market, citing the difficulties in using aluminum to fully substitute copper and lack of market acceptance. "Due to the performance factor, aluminum has proved unable to replace copper in many cases, so we don't see a major impact from the substitution talk on the copper market," the Antaike source said. The Wanxiang source said that some air-conditioner makers in China were trying to use aluminum to replace copper in the connecting pipes, but as aluminum pipes don't function as well as copper ones, the replacement was not popular. "As air-conditioners are inexpensive, consumers would rather buy those made using better material," he said.

Copper is an example of a good that has a low price elasticity of demand, due to the fact that there is a lack of close substitutes in the market.

We have also started to see signs of companies substituting other inputs where possible. With copper prices at or near all-time highs, manufacturers of cables and wires have started substituting aluminum in place of copper. Even the U.S. government is studying alternative metals to use in coin-making, and with good reason: The pure metal value of a nickel today is almost $0.07! In the textiles industry, some companies have tried to use more cellulose fiber and less cotton.

With an original price tag of just over $23M, the net of project change orders so far have saved the county $86K. The savings have been derived from the substitution of aluminum electrical conductors in place of copper feeders and through the installation of a foundation slab rather than running the lines overhead.

Copper's vital role as an electrical conductor will fire demand from renewable energy and technology industries even while the high price of the metal forces other industries to turn to aluminum as a substitute

LONDON, Feb 24, 2011 (Dow Jones Commodities News via Comtex) -- The use of alternatives to copper due to record high prices is not of immediate concern and is rather a long term issue, according Thursday to independent consultancy Bloomsbury Minerals Economics Ltd.

Copper’s rally above $10000/tonne on the LME was tested as markets became concerned over demand for the red metal. This is because industrial consumers could find a way to substitute this metal. However, we do not expect this move to take place in the immediate future as copper has major applications in various industries and it may not be easy to change course in the near future. Areas where copper can be replaced can be cables where aluminum can be used. But the concern in this case will be its lower conductivity which would not prove to be a great option. Hence, we do not foresee high prices to deter demand in the immediate future as substitution would require manufacturers to incur huge expenses.

Then they dampened down everyone’s hopes a few months ago by saying they were now looking at copper cabling for the technology as a way of cutting costs (though with the price opf copper increasing monthly I fail to see how this would make it a long-term viable alternative to USB3!)