Copper price rise delays infrastructure projects

With prices up 39% in the last six months, demand for wires and cables has declined 35%.

The demand for copper wires and cables has declined around 35 per cent in the last six months due to a dramatic spurt in copper prices. Consequently, cabling contractors in major infrastructure and housing projects are demanding revision in their contract valuation.

Experts believe many infrastructure and constructions projects are delayed due to the ongoing negotiations between contractors and builders.

The wire and cable industry accounts for over 30 per cent of the country’s total consumption of 700,000 tonnes. Depending on the size of the project, copper wires and cables account for 7-10 per cent of the total cost.

Sandeep Jain, managing director of Laurel Wires Ltd, a Mumbai-based cable manufacturer, said rising copper prices kept contractors away from the market in December and January, reducing the business nearly by half. Current prices were more than three times the cost of production, he added.

Copper prices have quadrupled in the last two years from $2,800 a tonne in 2008 to over $10,000 tonnes at present. However, they have surged a phenomenal 39 per cent in the last six months from $7,195 on July 30, 2010.

As a consequence, the Indian wire and cable industry is gradually shifting from copper to aluminium, especially in high-tensil wire applications. But, there are certain areas where copper wire can not be replaced with aluminium, like in household electrical equipment.

The current price is purely speculative, based on low inventory and high demand from emerging economies like China, reckon analysts. India, being a copper-surplus country, realises better when global price rises, but the downstream industry takes a hit.

Higher realisation might boost the top line of domestic companies, but would surely take a toll on the bottom line, said Jain.

Surendra Mardia, ex-president of the trade body, Bombay Metal Exchange, said, “The rise in prices has increased housing cost globally. Copper was getting a part of the paper money (economic booster and the second round of quantitative easing) being pumped into the system, thereby, helping the price rise, Mardia added.

But, impact would be severe when wire and cable companies would pass on the price rise to consumers within the next two months, Mardia added.

According to analysts, the demand for wire and cable is likely to remain robust, as emerging economies focus more on infrastructure development.