Copper shortage puts strain on construction, plumbing industries
``There is a major shortage of copper,'' says Arthur Butts, senior vice-president of Barnes & Co., a commodities trading company in New York. ``Although the immediate demand has been somewhat reduced, every time [copper users] go into the warehouse, they deplete the supplies.'' Copper wire warehoused by the London Metals Exchange (LME) and New York's Commodity Exchange (Comex) is down dramatically. On Jan. 2, 1987, combined stocks of copper added up to roughly 300,000 short tons, compared with Feb. 29, 1988, when about 80,000 short tons were on hand, according to Kali Das, a technician at Phelps Dodge Corporation.Skip to next paragraph
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Copper is primarily used for building construction, telephones, automobiles, appliances, and computers. Mr. Butts believes the latest demand for copper stems from a 700 percent increase in its use for communications over the last two years.
Meanwhile, the shortage has hurt the plumbing industry, says Robert C. Avino, president of Ramm Plumbing, in Elk Grove, Ill. The company is a subcontractor to large commercial construction projects. ``We don't have escalation clauses, so we got hurt on the current projects. The upcoming work will reflect an increase in price.''
William Reiger, a senior electrical engineer with Gibson Electric, in Westchester, Ill., says the electrical construction industry was also affected. ``We've taken a kick in the pocketbook'' with the higher copper prices. ``If we bid a job on March 10 for start in April, we may not get the copper for a couple of months. On a big building, it may take a year to get to the place where you lay the wire down. The price paid is effective at time of delivery,'' Mr. Reiger says.
By the time Reiger took delivery of the copper he needed for the jobs he estimated a year to a year and a half ago, the cost of the metal had gone up 50 to 100 percent more than he had expected to pay. ``That came out of profit,'' he says.
Higher copper costs are reflected in all work using it now. Jerry Shay, president of Kablemetal America Inc., a manufacturer of German copper and copper alloy products, sees a price increase of 20 to 50 percent, depending on the end product. Mr. Shay says people will try to use more copper substitutes (aluminum, plastic, or galvanized pipe) if the price gets too high.
The rise in copper prices is cyclical, analysts note. In 1980, copper peaked at $1.43 per pound. The high of the current cycle is $1.46 a pound, reached last Dec. 31.
Thomas M. Foster, vice-president of Phelps Dodge, agrees the price rise is cyclical, but he remembers the top of the last cycle: ``You had inventory built up. There were inventories at the LME and Comex. Since then, some mines have shut down. Consumption has stayed steady or increased over the last three years. Then last summer everyone looked around and there was no copper in the world.''
Both Mr. Butts and Mr. Foster believe the heavy demand has slackened off, but they point to the second quarter as seasonally being the peak quarter for the use of the metal.
When the price of copper exploded in the fourth quarter of last year, Phelps Dodge boasted earnings of $105 million, compared with $16 million for the first quarter of 1987. The extra income helped Phelps Dodge pay cash earlier this month for the Accuride Corporation, of Henderson, Ky., a manufacturer of medium and heavy truck wheels and rims.
``The break-even cost for production for us is 50 cents per pound,'' says Craig Saporito of Freeport Indonesia, another major copper producer. ``So we were profitable when we booked copper at 60 cents per pound, and all the way up.''