What do oil prices mean for cable makers? Changes in crude oil prices have very little direct effect on cable-making costs. Unlike copper, aluminium, and fibre, oil is not used as a material in making cable. Oil prices can have two indirect effects on cable costs. One is the cost of energy. The other is the cost of polymers compounds and gels that are derived from oil products and used inside cables or as the outer jackets of cable.
CRU has monitored data from the polymer industry on polyvinyl chloride (PVC) and linear low-density polyethylene (LLDPE) prices going back to 2009. From January 2009 to March 2012, crude oil prices increased nearly 400%. Then from March 2012 to 2016, oil prices dropped below the 2009 level, falling by nearly 70% in three years.
PVC and LLDPE prices, on the other hand, did not show this sharp rise and fall. From 2009 to 2012, PVC and LLDPE prices rose about 50%. From 2012 through 2016, PVC and LLDPE prices rose steadily and unevenly. In March of 2017, PVC prices were 46% above the 2009 level, and LLDPE prices were 86% above the 2009 level. The reason that these basic polymer prices do not track with oil prices is the extent of processing involved in their production.
Further, the prices of polymer compounds used in making cable do not track directly with PVC and PE prices. The reason is that there are many other materials in cable compounds – flame retardants, smoke suppressants, plasticizers, etc. These other compounds may have their own price swings, often due to their use in other industries. The prices of metal oxides used as flame retardants, for example, may be affected by demand in other industries that use the metal materials.
For outer jackets and some internal tubes and coatings, the polymer materials are extruded at higher temperatures and cooled on the cable-making lines. These compounds are fed into the extruders as pellets, with each pellet having the correct mixture of the necessary materials. The compounding process brings together these materials and makes the pellets. In some cases, there are companies that specialize in compounding and supplying the cable makers. In other cases, the cable makers do the compounding themselves. The decision on whether to use an in-house or external compounder can depend on the complexity of the recipe, the quantity needed, and the number of cable products that use a specific compound.
Compound-making companies often buy bulk chemicals such as PVC or LLDPE with contracts that may incorporate terms providing for price adjustments based on indexes of material prices. Of course, a compound may be only partially based on PVC, say less than half, so only that fraction is adjusted according to a commodity polymer price index.
The cable industry is heavily regulated. In most countries, there can be multiple independent standards bodies and government agencies that make rules affecting cable materials and cable performance. There are building and fire-safety codes. There are standards for cable materials, testing procedures, and labelling or marking. And the regulations are changing. In recent years, new regulations are being formulated to facilitate recycling, or to reduce the environmental impact of cable making. Such regulations may affect the types and amounts of halogen-based chemicals or other materials in cable compounds.
As the regulations change, the compounds can become more complex. Such additional complexity generally tends to increase the compound costs, not decrease them. Or cable makers may find that they have to work with a larger number of compounds for different products, which complicates the purchasing, storage, and processing functions for cable makers. And all of these increased costs mean that the prices of crude oil or bulk commodity polymers have less effect on the overall costs of making cable.