Why Are Cable Prices Rising So Quickly?

As I’m sure you may have noticed, cable prices have been on the rise over the last few months. A drum of 2.5 Twin & Earth was as low as £26.50 this summer, and we’re now well established at £36.50 with further rises to come. What exactly has prompted this increase?

The answer can mostly be found by observing the price of copper; the cable sheath does not have anything like the cost or fluctuation which copper has, and is not at the mercy of a speculative market. Copper, however, as well as its practical uses, is bought and sold on the commodity market in an attempt to make money. This means that any related news, good or bad has a huge effect on the price by affecting people’s confidence in their investment. If news of a shortage comes through, any cable and electronics company will buy up what they can while they can to keep their margins. Similarly, if a massive increase in spending on infrastructure is announced, or another large-scale project likely to involve massive wiring, speculators will attempt to buy at the current price to sell back to market once the price has increased.

Let’s look at the chart for the price of copper:

As you can see, we’ve had a comfortable year fluctuating around the low end of the price scale, and then towards the end of October, prices have very clearly gone through the roof. So, what caused it this time?

Well, the short answer is Donald Trump. Politics aside, one of his pledges during his acceptance speech was as follows:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We're going to rebuild our infrastructure — which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”

This is exactly the type of trigger we’re talking about. Infrastructure cannot function without copper, and so every cable manufacturer, and commodity speculator has since been buying every gram they can get their hands on.

Secondly, there may be something of a supply issue; four of the five largest copper mines on the planet are all in Chile, and production at each of them has fallen over the past year. Even the largest mining company in the world, Freeport-McMoRan Inc., has had extraction issues in one of its largest mines. All in all, stocks are running a little lower than usual.

But in the case of British electrical cable, this isn’t even the full story. Global export, to keep things simple, is all based on $US. Shipping is all paid for in dollars too, meaning anything being imported or exported is bought and sold in $US. Currency exchange then, plays a critical role in any part of international business. If your currency isn’t worth much in dollars, you’re in trouble. Now let’s look at the chart showing the price of Great British Pounds (GBP) vs US Dollars (USD):

There has been a clear trend here since summer 2014, and it’s downward. Sterling has been losing out again and again against the Dollar, based on a multitude of macroeconomic factors. The obvious hit came after Brexit, where currency traders, and big businesses, lost faith in Britain’s economy due to the severed ties with Europe’s single market.

Back to copper though, let’s look at a graph showing both the Sterling / Dollar chart, and the copper price:

The price that we need to stay low has burst through the ceiling, and the price which we needed to rise has plummeted through the floor. This clear divergence has a compounded effect, and is the reason for prices pushing up at an unprecedented pace.

So, what does the future hold?

Well, for the foreseeable future, the currency price seems to be here to stay, but industry experts don’t think the copper price can last; typically, congress talks a good game in spending on infrastructure, but rarely backs it up. A recent example is the High-Speed Rail project in California which is in no way progressing as promised.

No one knows how the Trump presidency will pan out, and maybe he really can make things happen as he claims. It may be however that Trumps spending follows the historic trend, and won’t materialise to the extent which has been promised. This will without a doubt rebalance the price after the excitement has worn off, but the price is stuck up there for now.

References:

http://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/3-largest-copper-mines-in-the-world/

http://www.mining.com/forget-gold-price-real-trump-rally-copper/

https://www.bloomberg.com/gadfly/articles/2016-11-28/copper-s-capacity-problem

http://uk.investing.com/commodities/copper-streaming-chart

Tagged: Copper, cable, economics, trump, brexit