In contrast to the continuing buoyant market for metals, the price of optical fibre has remained obstinately flat, despite healthy growth in demand. Global demand for fibre grew strongly during both 2005 and 2006. Demand growth has continued in 2007, though the growth rate has slackened. CRU estimates that global demand for fibre was 27% higher in 2006 than in 2005, and is likely to be a further 11% ahead in 2007. Not all regional markets for fibre optic cable have been showing consistent strong growth, but the general trend in global demand has been upwards. Demand in North America, for example, grew strongly in 2005 and 2006, mainly driven by fibre to the home (FTTH) installation, but demand in 2007 is likely to be a little lower than in 2006, as the level of Verizon’s purchases of fibre optic cable has fallen. In China and India there has been very strong growth in fibre optic cable demand over 2006 and 2007.
As a result of the strong demand for fibre optic cable there have at times been reports of short term shortages of optical fibre in some markets, but prevailing prices have been very slow to react. It is too early to talk in terms of clear price rises, but fibre producers may now have greater freedom to increase the volume of fibre supplied to customers that pay higher prices. Another factor that is important in the optical fibre market is the impact of exchange rates. With the US dollar falling against most currencies, fibre suppliers quoting in euros or yen have effectively had price increases in US dollar terms, even if in local currency terms prices have been flat.
This situation of generally flat prices is likely to continue, so long as there is some spare competitive capacity that fibre producers can use to gain incremental revenue at current apparently low price levels without having to make additional major investment. There has been much debate within the industry as to when existing fibre production capacity will be full, at which point there should be scope for fibre prices to rise. But will fibre producers be willing to invest in additional capacity while prices remain at current subdued levels?
After the market collapse that followed the last boom in fibre demand in 2000 and 2001, some fibre production capacity was “put into mothballs”, rather than being totally closed. Now that demand is recovering, the most obvious potential bottleneck is limited capacity for production of preforms, especially as some fibre-drawers rely on externally sourced preforms. Some of the mothballed fibre production capacity has been brought back on-stream as demand has grown. Thus in the US, for example, Draka Comteq has restarted production at its Claremont plant and Corning is re-opening its plant at Concord. In the developing world some major fibre producers, such as YOFC in China and Sterlite in India, are expanding capacity in response to strong demand in their home markets. Unless optical fibre demand increases very quickly, the potential for fibre supply to fall well behind demand, with a resulting major rise in prices, seems limited. This situation contrasts with what has been happening in base metal markets, where supply constraints are much more severe and difficult to overcome.