Copper Shortages Hit Home

Happy New Year!

My New Year started off with a notice from my electrician that, due to the dramatic rise in copper wire prices, I should begin to figure an additional 15% - 20% increase to my standard bid amounts. Copper shortages and prices have been a focal point of news stories over the past couple of years as copper thieves have struck telephone supply yards, residential and commercial building projects and even churches. Over the last few months, the rise in copper prices has changed from steady to meteoric – what’s going on with copper, and what does it mean for builders and homeowners?

First of all, copper supply and demand is a global issue. For some time, demand has outstripped supply and industry experts project that this trend will continue for the next two years. Trafigura Beheer BV, one of the world’s largest industrial metal traders, predicts that prices will peak over $10,000 per metric ton this year.

While I was a bit surprised at the notice I got, my electrician is on target – copper prices rose 21% last year and many manufacturers are trying to build inventories to meet upcoming demand. China, the number one importer of industrial metals (and the consumer of 35% of the world’s copper), has created much of the pricing and demand problem. But other factors have a part to play as well:

• Many other developing countries have a great demand for copper
• Bringing new mines online is expensive, time consuming, and subject to labor and political disputes
• The European Union, Japan and the U.S. have experienced double digit growth in copper consumption as economies stretched in recovery mode
• Copper has become an international investment vehicle, playing additional havoc with prices and taking supplies away from manufacturers

Thirteen of 14 industry analysts (according to Bloomberg News) expect a copper shortage in 2011.

So what does this mean for the housing industry?

In addition to standard electrical wiring, we use copper in heat exchangers for industrial use and home construction, solar panels, tubing for air conditioners and other superconductor applications. With the volatile price changes expected in the trading markets, the manufacturers who supply our building materials have a hard time pricing products, meaning that pricing can fluctuate wildly during a single construction project. If builders can’t or choose not to pass on the increases to customers, then construction profits (already squeezed by the housing collapse) will continue to suffer.

Like many factors in the current new construction and remodeling environment, the price and availability of copper is beyond our control. Savvy builders and consumers will keep an eye on the markets, prepare bids and contracts carefully, and look for reasonable alternatives where possible.