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Copper worries

MEP Middle East looks at the effect of copper price fluctuations

Falling copper prices have led to speculation that the metal is being impacted by the global downturn.
Falling copper prices have led to speculation that the metal is being impacted by the global downturn.

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The last month has seen copper prices fall from their dramatic highs in the early part of the year, when the metal was trading at record prices of $10,190 a ton on the London Metal Exchange.

Since then there has been a 12% fall due to concerns over the sovereign debt crisis in Europe and the US. Meanwhile, a slowdown in China is expected to dent demand for industrial metals, a Bloomberg News report says.

While there has always been a traditional falloff in copper prices from July to September, analysts are cautious about the drop this year with the global economy still reeling from the deepening global economic crisis.

Heightening the sense of confusion around the issue is the lack of conclusive data at the moment, due to the summer slowdown. Worryingly for investors, market evidence does point to the possibility that copper prices could move in either direction, when global consumers embark on their third quarter restocking programme.

Having hit record highs last February, prices have retreated in the wake of the financial turmoil in both Europe and America. Although this has been compounded by the seasonal demand lull, the prices for the metal have held up comparatively well.

Earlier this month, copper prices on the Shanghai Futures Exchange closed at their highest point in more than three months, with the market anticipating a post-summer consumption boom.

This rally came despite the fact that order volumes continued to be below the expected levels, with the London Stock Exchange reporting that cancelled warrants (orders to remove copper from stockpiles) monitored by the London Stock Exchange dropped for a 13th straight session and hit a fourth month low, copperinvestingnews.com reported on August 23.

Internationally however, global markets expect rest of Asia to play a dominant role in the direction copper prices take, with China especially regarded as a bellwether for the rest of the region.

“The increasing demand of copper by the growing markets such as India and China caused the copper increase in its value until about six months ago,” Aslam Zuberi, sales director – GCC, Reichle & De-Massari MEA, says.

“Now the pressure on the stock markets is due to the US dollar value. The general belief is that the growth and development will decrease in the future. This has caused copper prices to decline.”

However, certain analysts have called for calm, explaining that such behaviour is typical of the annual lull, and was not necessarily an indication of the weakness of the market.

Indeed, local markets don’t seem too adversely affected despite the challenging environment in the market.

In August of 2011, Ducab, the Dubai and Abu Dhabi government backed cable manufacturer announced record sales of $653m during the first six months of 2011 despite high copper prices affecting working capital.

“We are pleased with the results although market conditions remain very competitive and pricing still has a long way to go before margins are restored to reasonable levels,” says Andrew Shaw, managing director.

Despite the competitive market conditions, Ducab said its copper product line accounted for $272m in sales, offering clear proof that the local market appetite for copper remains strong despite the price fluctuations.

Demand for copper based products in the Middle East is strong enough to convince the manufacturer to commission a $136m plant that will extend Ducab’s product range into the ‘Extra High Voltage’ cable segment, manufacturing cable systems up to 400kv. The plant is a joint venture between Ducab, DEWA and ADWEA.

However, Zuberi warns that as copper accounts for anywhere from 40% to 60% of cabling costs, it was likely that the costs of infrastructure would be likely to rise.

“Contractors have started looking for lower cost solutions, which has caused the quantity of networks to go down, thus affecting network performance. High performance and high quality manufacturers and solution providers are thus facing bigger challenges to convince their customers about the quality solutions they can offer,” he explains.

He says that he expected the downfall in copper prices to last another 10 months to a year due to the effects of the economic recession, which he says is likely to deepen in the coming months.

He adds that the market has already begun feeling the pinch, with manufacturers forced to increase the price of their products due to increasing price pressures.

Approximately 600,000 tonnes of copper is used in the Middle East every year, the International Copper Association says, with the building industry the biggest consumer. Of this, 65% is refined or new metal. The remaining 35% is made up of scrap metal.

Possibly the greenest commonly used architectural metal in use today, copper plays a vital role in the MEP industry, being used for everything from cladding and roofing systems, to high-tech plumbing and heating systems that use tubes and fittings manufactured from recycled copper.

“Buildings have the greatest impact on climate change with increased consumption of electricity and natural gas by residents that are powered by plants that contribute to carbon emissions. The use of copper can significantly enhance energy use efficiencies, thus contributing to a greener environment,” says Ravinder Bhan, the local representative of the International Copper Association in Dubai.

Due to its light weight, easy malleability and extreme durability, the metal is a key component of many energy saving technologies, including passive solar water heating systems, which employ copper to capture and convert sunlight into heat. Copper heat exchangers also efficiently also efficiently transfer thermal energy absorbed by the solar collector to hot water systems.

These traits make copper an attractive proposition for MEP contractors in the Middle East, says Bhan, as systems using the metal can be installed in buildings, resulting in major savings and increased energy efficiency.

“Sunlight is abundant in the Middle East region, renewable and, even where it’s not readily available, can supplement a home’s hot water needs, virtually cost-free once a system is installed,” he adds.

Extensively used in cable manufacturing due to its low resistance and high current carrying capacity, copper is considered to be one of the safest conductors of electricity.

“This enables it to withstand heavy electrical loads with ease,” Bhan says,
“That is why using pure copper wires while planning electric circuits is a must.”

“With several building projects in the final stages of development, the choice of copper for interiors and other applications will significantly contribute to the region’s current thrust on driving sustainable development,” Bhan says.

When it comes to plumbing systems, the MEP industry has found that copper pipes and fittings ensure long-lasting, trouble free and safe delivery of water for all daily uses. The metal can also be used in buildings of any type, from hotels and offices to private houses and apartments.

Copper is also popularly used in security systems due to them being strong, reliable and corrosion resistant.

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