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Copper Price Drops

Dec. 1, 2003
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Although copper prices have dropped recently by more than 15 cents per pound, industry observers do not believe the lower prices will have any dramatic impact on the price of wire and cable.

The drop in copper prices came on the heels of Phelps Dodge Corp.'s announcements in October of cuts in production and personnel. The company, the world's No. 2 copper producer, plans to scale back production by approximately 220,000 metric tons, and layoff more than 1,440 workers.

John Gross, editor of The Copper Journal, Huntington, N.Y., a copper industry newsletter, said the global economy's current weaker demand for copper may drive prices down even further.

“During 2001, we saw global consumption of copper fall into negative territory,” he said. “At the same time, global production rose considerably. As a result, the inventory for copper rose to record highs earlier this month (October) with the resultant price hovering at a low sub-60-cent range.

“Something will have to happen if production continues at high levels and consumption remains weak — and the global economy suggests a continued weaker consumption level. The surplus of copper will continue to grow, which would put more pressure on already low prices. Phelps took the first step with its announced cutback. We will need further cutbacks or an increase in consumption.”

Gross said that given the global economy, coupled with the events of Sept. 11 and the activity in Afghanistan, it doesn't seem likely that consumption will rebound anytime soon.

While he is somewhat pessimistic relative to the short-term situation with copper, he thinks the copper market's natural cycles will pull prices back up.

“Copper is very cyclical in nature and the market will recover. There's no question about it. So, longer term, I remain optimistic.”

Vince Rego, chairman and chief executive officer, Encore Wire, McKinney, Texas, agrees with Gross and was encouraged by Phelps Dodge's move.

“The only time our industry does well is when the price of copper goes up,” he said. “We hope the price of copper goes up and goes up dramatically.”

Jeffry Bleiman, principal, William B. Bleiman and Sons Inc., Philadelphia, was not concerned about copper prices, and said that pricing would not negatively impact the electrical industry unless copper becomes scarce and prices surge.

Another Philadelphia-based independent manufacturers' rep, Gene Biben, principal, Joseph Biben Sales Corp., doesn't believe wire and cable manufacturers will cut prices because of the drop in copper costs. “You're not going to see manufacturers cutting their prices for building wire based on the cost of copper,” he said. “There is so little margin in building wire today, coupled with the fact there are far fewer manufacturers than there were in the past.

“I don't pay as much attention to copper prices as I used to when I began as a manufacturers' rep,” he added. “The price of copper and how it will impact building wire prices isn't so important that I keep a daily watch on copper prices.”

Biben said, historically, copper companies were owned by individuals or companies that could afford to wait for the good years. In contrast, he said most of today's companies are publicly traded corporations that report earnings on a quarterly basis. As a result, the price of copper is a much bigger issue to them.

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