The cash price of copper has been hovering in the range of $3.20 to $3.30 per pound, well down from where it started the year and far from its 2011 highs of over $4.50, but the final cost of getting copper for making wire and other electrical products has been rising due to a doubling in the premium fees charged by commodity trading companies that warehouse the metal. Even for those willing to pay, getting the copper is by no means certain.
Fluctuations in the spot price of the economic bellwether metal have always responded to news about global economic conditions, inventory levels and supply disruptions, though often in inscrutable ways. The picture has become murkier, lately, due to the combined complications brought by investors treating copper and other commodities as purely financial instruments, recent increases in premiums and uncertainty about availability.
The premiums wire companies must pay to get delivery of the copper have more than doubled in recent months as copper inventories have piled up in the warehouses of a couple of large traders. Wire manufacturers book contracts with their copper suppliers several months to a year ahead to lock in prices and quantities for production. Due to the uncertainties of forecasting demand a year off, they typically do these contracts for a certain percentage of their anticipated needs and make up the rest with month-to-month purchases on the Comex spot market. Despite the overall global copper market being in a continuing surplus, according to the International Copper Study Group, Lisbon, Portugal, actually getting that copper has become more costly and uncertain.
United Copper Industries, Denton, Texas, has seen the premiums they pay to get copper cathode out of bonded warehouses and shipped to their plants more than double over the past few months, and, says President and CEO Andy Blanchard, there’s no sign the situation will change soon.
This has implications throughout the electrical sales channel that may require a change of mindset from end-users buying wire and the distributors supplying them. Instead of price shopping, contractors and end-users may need to build partnerships to make sure they can get the wire they need.
“This is what distributors and contractors don’t appreciate, because we treat them with such unbelievable customer service — they’re used to assuming the copper’s going to be there,” Blanchard said. “I’m forecasting ‘x’ amount of sales, and securing that copper and only that copper, and that’s all I have available to sell in a month. The contractors play one manufacturer against another, but the customers should be partnering to make sure they have supply available. We form partnerships and make commitments to them in terms of supply based on limited availability of copper. We turn customers down every day. We tell them, ‘I don’t have any copper to support you,’ and they get left on sidelines.”