In 2016, the global total of refined copper production was 22.1 million tonnes. The amount of copper used to produce insulated wire and cable was 14.9 million tonnes. This means that wire and cable production used 68% of the refined copper produced in 2016. With aluminium, the wire and cable industry uses a much smaller fraction of the world’s total production. In 2016, world production of aluminium totalled 58.9 million tonnes. The amount of aluminium used in insulated wire and cable was 2.6 million tonnes. In the case of aluminium, insulated wire and cable production represents about 4% of the world’s annual production level.
In addition to the 2.6 million tonnes of aluminium in insulated wire and cable, another 5.9 million tonnes of aluminium were used to make bare overhead conductor in 2016. This brings the total wire (insulated or un-insulated) and cable consumption of aluminium to 8.5 million tonnes. This total is 14% of the world’s total aluminium production in 2016. The use of aluminium in construction and transportation accounted for 42.9 million tonnes of aluminium consumption in 2016, or about 73% of aluminium production.
What this means is that the wire and cable industry is a significant consumer of copper and can affect copper prices. With aluminium, on the other hand, the wire and cable industry is a small consumer. Other industries have a much greater effect on aluminium prices. Also, aluminium is used for a minor percentage of wire and cable, so changes in aluminium prices have less effect on the overall cable market than copper price changes.
In many electrical cable applications, either copper or aluminium could be used as the conductor. Of course, copper and aluminium differ in terms of many key characteristics, including mechanical properties, conductivity, corrosion, density, and price. Of these characteristics, price is the one that can vary from year to year or month to month. Thus the factors in other industries, such as construction and transportation could affect aluminium prices, which in turn could affect the substitution of aluminium for copper in some types of cable.
The trend in aluminium prices over the past four years is somewhat parallel to that of copper prices. Aluminium prices, like copper prices, were high in 2010 and 2011, then began a four-year period of gradual and uneven price declines. Again, like copper prices, aluminium prices decreased more sharply in 2015, reaching a low of US$1,450 per tonne in December of 2015. Aluminium prices increased steadily through 2016 and Q1 2017, reaching US$1,960 in March of 2017. This price is similar to prices at the end of 2014, before the downturn in 2015.
Many of the factors affecting copper prices also affect aluminium prices – demand in China, international trade with China, commodity trading, exchange rates, trends in construction, and stocks of raw materials. But there also are several factors affecting aluminium that do not affect copper: vehicular production; smelter capacity, and environmental policies that affect smelter operations.
The output level of China’s smelters is likely to be particularly important for aluminium prices in the rest of 2017 and 2018. Smelter production in China is coal-powered, and smelters near major cities are a significant factor in air pollution. The government’s plans to reduce air pollution include shutting down smelters in some locations. These policies may affect investments in future smelter capacity as well as near-term smelter operations. The result could reduce China’s aluminium stocks and contribute to higher prices.
Another factor, possibly pushing prices in the opposite direction, is trade between the US and China.The Trump administration has expressed concerns about the quantity of goods that the US imports from China. Currently, China is the world’s largest net exporter of semi-finished and finished aluminium products. The US is a major trading-partner country; it accounted for 40% of the growth in China’s aluminium exports from 2012 to 2016.
Although there are no specific plans, the Trump administration has said it may consider raising tariffs on imports from China. This would reduce China’s total exports, affecting the country’s balance of aluminium supply and demand, putting downward pressure on prices.
The aluminium market and prices appear to be at a tipping point. The smelter cuts in China may reduce supply and drive prices higher. On the other hand, the trend of higher exports from China to the US may be coming to an end. Changes in US trade policies could reduce the demand for Chinese aluminium products. Other factors will push global average prices into a rising trend. For example, stocks have fallen significantly outside China in recent years.
The net effect of the factors affecting China’s balance of supply and demand along with the factors in other countries will be a gradual rise in prices through 2017 and subsequent years. CRU forecasts the LME 3-month aluminium price will average $1,750 per tonne in 2017. Worldwide consumption of aluminium will increase with a CAGR of 3.5% from 2016 to 2021. The imbalance – the excess of supply – will gradually diminish, and prices will rise to levels greater than US$2,000 per tonne by 2021.
This means that the insulated wire and cable market value, expressed in US dollars, should show positive growth in the next five years, after five consecutive years of decreases from 2011 to 2016. As measured in conductor tonnes, the world’s consumption of insulated wire and metallic cable (excluding optical cable) increased with a CAGR of 2.6% from 2011 to 2016. During the same years, this market’s value in US dollars decreased with a compound annual rate of (minus) -5.6%. The difference in growth rates is explained by the decrease in average prices, mainly due to conductor price decreases.
The decreases in cable prices varied among cable types, depending on the amount of copper or aluminium and other cost factors. From 2011 to 2016, low-voltage energy cable prices dropped with a compound annual rate of (minus) -8.9%. The rate of decrease for other types of copper cables ranged from (minus) -8.1% to (minus) -6.1%. Aluminium power cable prices decreased with a compound annual rate of (minus)-3.8%.
Winding wire prices decreased with a compound annual rate of (minus) -10.0%. Both aluminium and copper are used for winding wire, with copper accounting for 90.9% of the total conductor tonnes in 2016. Thus, the changes in winding wire prices are almost entirely determined by the changes in commodity copper prices. Also, with winding wire, the enamel insulation is a very small part of the raw material costs.
For cable makers, costs other than conductor materials have changed very little from 2011 to 2016. The hollow price is the average cable price per conductor tonne minus the average price of copper or aluminium per conductor tonne. The hollow prices for winding wire and metallic cable were basically flat from 2011 to 2016. Winding wire showed a 0.4% CAGR, and other cable types showed a slight decrease in hollow prices, ranging from (minus) -0.9% to (minus) -2.0%. These slight decreases may a reflect many different factors, including currency exchange rates, improved efficiency in manufacturing, and lower energy costs.