Raw Materials Update

In the past two years, the prices, availability, and market trends of cable-making raw materials have been eventful.  Perhaps “tumultuous” is a better word. Monthly copper prices fell to a 10-year low in early 2016 (US$4,448 per tonne) and had bounced back 31% by March 2017. Aluminium prices hit a seven-year low in December 2015 (US$1,450 per tonne) and had bounced back 35% by March 2017.  

 

Oil prices had fallen to a 13-year low (US$31/bbl) by January 2016 and mainly have fluctuated between US$45 and $55 per barrel since Q2 2016. Prices in this range are approximately half the hundred-dollar-plus levels that held for several years after the recession of 2009.  

 

In other cable materials, a shortage of optical fibre is causing problems for many telecom cable makers. And new requirements for green and non-halogen materials are spurring changes in cable jacket compounds and other materials in some markets.

 

Effect on Cable Prices and Margins

Lower prices for copper and aluminium generally mean lower material costs for cable manufacturers. These lower costs, however, are generally passed through to the cable customers. As a result, cable makers’ operating margins generally are not directly affected by lower materials costs. 

 

The financial reports of listed companies verify that the recent swings in copper and aluminium prices have not had much effect on operating margins. The shifts in metal prices have caused complications for cable company procurement and sales executives, but have not caused substantial changes in manufacturing or substitution of materials.

 

Oil prices indirectly affect cable makers

Changes in crude oil prices have a negligible effect on polymer prices, due to the range of additives and the complex formulations of cable-making compounds. Oil prices may affect energy costs a little, but this has not been detrimental for cable factory owners. One indirect effect of lower oil prices, however, is slower growth in the world economy and particularly in oilfield investments. These factors can result in lower demand for some types of cable.

 

Fibre prices went up in 2016

The fibre shortage has caused bare fibre prices to go up. As with conductor materials, however, this does not directly affect the operating margins or profitability of the cable makers. Of course, the fibre shortage causes many problems for cable makers: balancing the needs of different customers, assuring timely deliveries, scheduling large orders, etc. The fibre shortage has spurred development of new fibre-making capacity, which involves large capital investments and additional risk for the fibre and cable makers.  

 

Prices of other raw materials used in cable production – tin, steel, various yarns, gels, insulating materials, etc. – have not changed as much as conductors and oil, and do not have such a great effect on cable sales or profitability.