2023.12.01
The impact of metal prices on the cable industry
Over the past year, we have seen significant changes in metal prices, especially for copper and aluminum, which are critical for cable manufacturing. Selcable has therefore asked Teknikföretagen's economist Bengt Lindqvist to analyze the latest figures.
Compared to 2022, copper and aluminum prices have shown significant fluctuations, driven in part by changes in China's economic policies and global investment trends. Both aluminum (Alu) and copper (Cu) peaked in connection with Russia's invasion of Ukraine, only to fall back. When China changed its pandemic policy at this time last year, there was a short-lived price increase as China's economic growth picked up. Since then, China's economy has lost momentum and world market prices have fallen back.
— For both Alu and CU, the price level is still higher than during the boom of 2018-2019. For CU, it is around SEK 2.5 per kg. One explanation for this is generally higher energy prices and uncertainty regarding global energy policy, says Bengt Lindqvist.
Price fluctuations have a direct impact on the cost structure of the cable industry. Increased metal prices lead to increased material costs, which in turn squeezes margins for manufacturers. Interestingly, statistics show that parallel price changes have taken place for nickel (Ni) and zinc (Zn), suggesting broader market dynamics influenced by global economic conditions.
— The price of Nickel and Zinc has declined to a very high extent since the Ukraine war began. Ni not far from the same level as during the boom of 2018–2019, Zn clearly lower both calculated in USD. Although the global automotive industry has recovered after a period of component disruptions, production volumes have not yet reached the levels from 2018/2019. In addition, demand for stainless steel from the white goods and food industry has decreased as a result of reduced household final demand for these goods is at or lower, explains Bengt Lindqvist.
Furthermore, the growing technology sector is affecting metal prices through increased demand. With Sweden as a growing hub for technology investments, increased demand for metals can be expected, which could further affect prices.
— Admittedly, Sweden is a small global player in terms of consumption of metals, but globally we can expect that a focus on the green transition can have an effect. At the same time, world market prices in the medium term will be greatly affected by China's economic growth, which is now a shadow of its former self, which in the absence of exceptional economic shocks is holding back demand.
Global inflation has slowed down relatively significantly and interest rate cuts are expected to follow in line with this. Until inflation targets are met and interest rates have crept down, Bengt does not expect any upward pressure on metals.
— Right now, the world economy, especially for the EU, the US and Japan, has experienced a major interest rate shock that has negatively affected growth, especially household consumption of food, interest-sensitive durable goods and housing construction.
The final advice from the economist is therefore that cable manufacturers must navigate this dynamic environment with strategies to manage raw material costs. The attached report highlights the importance of understanding these complex relationships and adapting business strategies accordingly.
— The future of the metals market is uncertain, and it is important for companies to constantly monitor the market and adapt their purchasing strategies to remain competitive, concludes Bengt.