(Bloomberg) — For months, as copper rose to record highs and then fell again, a key question arose in the metals industry: What is China’s state-owned grid operator doing?
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The world’s largest buyer of copper, State Grid Corp. of China, slowed its purchases of copper wire this year, while increasing purchases of aluminum wire, a cheaper substitute. While it’s likely a natural response to rising copper prices, the move has sparked a debate about whether there’s something bigger going on – whether one of the metal industry’s most important but opaque buyers could be undergoing a policy change that could shake up the market. global.
The possibility of large-scale replacement of copper in China’s power grids would have a significant impact on global demand, and some traders are touting it as a reason to bet against the broad consensus regarding growing shortages and rising copper prices. In the next years. China is the world’s largest consumer of copper, with more than a quarter of global supply being used for Chinese electrical cables.
Still, traders and industry executives said it’s far from clear that any major push is underway — small-scale replacement of high-priced copper has been a long-running theme in the market and tends to attract more attention whenever prices rise. . Others suggested the change this year was just a temporary response to rising prices.
“It is not a new topic in China, but it has been an ongoing issue for years, with no significant progress from the state-owned network,” said Chenfei Wang, head of wire and cable at CRU Group in Shanghai. “The topic gets ‘hot’ whenever copper prices rise.”
Copper fell about 12% from May’s record high of $11,104.50 on the London Metal Exchange amid profit-taking by investment funds and weak Chinese demand. It fell 0.1% to $9,793 a ton at 11:14 a.m. in Shanghai.
Copper has been the metal of choice for conducting electricity since the days of Thomas Edison, but aluminum – less conductive but also lighter and cheaper – has long been used as an alternative. Because aluminum is less conductive, aluminum cable must be longer than copper cable to transmit the same amount of electricity.
For uses where weight is important but there is no space constraint, such as overhead power transmission lines, aluminum is commonly used. Where space is at a premium, such as underground cabling in city centers, copper wins. Aluminum also has a reputation for being less safe, which was cemented in the 1970s when high copper prices triggered a boom in the use of aluminum in home wiring and a wave of electrical fires.
Globally, substitution has reduced copper consumption by about 1% and 1.5% per year over the past decade, according to a recent presentation from the International Copper Association.
Although the global copper market is currently well supplied – largely due to weak purchases in China – there is a widespread view that the industry is heading for large deficits in the coming years, which could cause prices to rise. dramatically.
In China, copper is legally required for certain types of wiring or power generation uses, so traders are on high alert for any sign of a policy change.
The world’s largest utility company, State Grid supplies electricity to more than 80% of China. However, it only uses public tenders for certain purchases and, even then, it does not always disclose whether it is purchasing aluminum or copper wires, making it difficult to monitor purchasing decisions.
But several analysts and industry executives said State Grid has slowed purchases of copper and cables in recent months as copper prices have soared to a new record, driven by purchases from bullish investors.
A major network supplier said his company’s copper cable sales fell about 20% in the second quarter.
Bidding for state grid insulated metal power cables has slowed since April due to high copper prices, although some activity has resumed after prices retreated, CRU’s Wang said.
Meanwhile, sales of aluminum cables have increased sharply. State Grid’s bids for aluminum cables rose 40% to 718,000 tons in the first four months of this year, according to Shanghai Metals Market.
And there has been growing discussion about replacing copper with aluminum.
In China, as in much of the world, aluminum is used in high-voltage overhead electrical cables, where its light weight is an advantage. But China still uses about 7.5 million tons of copper a year in electrical cables, compared with 3 million tons in aluminum, according to data provided at an industry conference organized by the Non-Ferrous Metals Industry Association of China. China, in Shanghai, on July 3rd.
Opportune moment
“The time has come” to promote the replacement of aluminum with copper, association president Ge Honglin said at the conference earlier this month, referring to the country’s abundant aluminum resources, high dependence on imports of copper and the economic competitiveness of aluminum in relation to copper. Aluminum has achieved “industrialized” use in low-voltage grids, Ge said.
A State Grid cable supplier has increased its aluminum purchases by nearly 50% in recent months, according to a person familiar with the matter. Still, they warned that the increase in demand for aluminum cables appeared to be for use on construction sites – and therefore in temporary installations – and not for use in the electricity grid.
State Grid did not respond to a request for comment.
Italy’s Prysmian SpA, the world’s biggest cable maker, is also skeptical about the prospects for a broader, global shift to aluminum unless the industry faces a real shortage of the metal.
Prysmian customers in fast-growing areas of use – such as ultra-high voltage cables for connecting new renewable energy projects to regional grids or cables for use in artificial intelligence data centers – prefer copper because it is more efficient and reliable, said the head of sustainability. official Maria Cristina Bifulco
“Honestly, we haven’t seen a change driven by potential shortages or fears about the price of copper,” she said.
Still, it is clear that recent high copper prices are having an impact on some sectors of the market. The “savings,” some of which included replacing aluminum, have already reduced copper demand by 400,000 tons, said Max Layton, an analyst at Citigroup Inc., in a recent interview.
“In our view, the likelihood of policy change is increasing,” Citigroup analysts wrote in a recent note. “The large-scale replacement of aluminum, if implemented, represents a risk of limiting the rise in the price of copper.”
–With assistance from Dan Murtaugh.
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