The wire and cable industry might be mature, but there are still plenty of growth markets, including telecommunications, construction, and automotive. But prices for steel, copper, and metals will be heavy directional influencers.
Raw material volatility poses among the greatest threats to stable prices and production costs in many cable and wire markets, experts say. But positive news in the construction and telecommunications sectors, upon which much of the growth of these markets depends, promises to keep prices steady in the next few years.
Cable and wire markets are incredibly diverse and broad, with their biggest end-users being telecommunications and power companies. Their applications are ubiquitous across so many industries, including commercial and residential construction. Some of the most common components include rubber, copper, aluminum, and various plastics, including thermoplastic and thermosets. These markets are characterized by a vast and diverse range of manufacturers and suppliers across the world.
Because marketing costs for electrical cables, non-electric iron and steel wire, and mechanical cables are historically very low, producers typically invest most in innovation, according to IBIS World. Moreover, price competition is stiff because of the sheer number of producers, as well as the plethora of cheaper foreign producers.
IBIS World reports that electrical cable products are in the growth phase of the product life cycle and include coaxial cable, halogen-free cable, multi-core cable, and axial cable. Manufacturers, wholesalers, and retailers — both foreign and domestic — are all major suppliers.
Mechanical cables, which are widely used for lifting, towing, or hauling, are generally produced with high-carbon and stainless steel as well as nonferrous metals. Mechanical cables are used heavily in the construction, mining, and oil drilling industries. Suspension bridges use an extensive amount of mechanical cable.
Non-electric iron and steel wire end-products include low- and high-carbon, hand-drawn, and stainless steel wire, as well as wires that are stranded, oil tempered, or used in pre-stressed concrete applications, according to the firm.
Recent History, Current Market Conditions
Like most sectors, wire and cable markets continue to recover from the global recession a few years ago. Because a substantial portion of sales depends on commercial and residential construction, as well as the automotive industry, they were hit hard.
In 2009, the total value of nonresidential construction plunged over 21 percent (and another 15.6 percent the following year), with residential construction also falling about 4 percent, according to IBIS World. In 2012, the strongest post-recession recovery year so far, things turned around because of pent-up demand. That year, commercial construction went north nearly 11 percent, eclipsed by a residential housing rise of more than 12 percent.
Perhaps the brightest spot for cable and wire markets is in IT telecommunications. Take fiber-optic cable, whose high-speed properties led to millions of miles of it being laid across the country to support Internet and cable television improvements. That industry “bottomed out” around 2003 but has since ramped up at a healthy pace, according to Freedonia Group. In the near future, most of the demand will come from so-called “last-mile” applications, which are still primarily comprised of copper coaxial cable, the firm noted in a recent report.
While domestic demand continues sputtering thanks to a weak dollar, sluggish consumer demand, and snail’s-pace infrastructure spending, demand from developing countries in Asia are keeping profits healthy, according to Global Industry Analysts. The Asia-Pacific region, for example, is currently the fastest-growing regional market for insulated wire and cable in large part because of growing adoption Internet use and the emergence of Wavelength Division Multiplexing (WDM) technology, according to the firm.
Nearly all wire and cable market sectors are characterized by overheads above 20 percent and slightly declining profits and wages, IBIS World reports.
Here’s a brief look at innovation and R&D, according to the analyst:
- Electrical cable — Changing and growing energy and data processing demands (such as the call for superconducting power lines that can operate at high temperatures)
- Mechanical cable — Improving strength and flexibility
- Non-electric iron and steel wire — Improving tensile strength and corrosive resistance.
Robust Competition Keeps Price Hikes Down
Strong and growing competition from markets where labor costs are low (like Asia) are part of the reason for sluggish margins in the United States. Low-cost specialization also gives buyers a great deal of leverage because product feature differentiation can be low.
Concurrently, high price volatility in many of the raw materials needed to make these products, as well as roller-coaster energy costs, makes forecasting interesting. According to Global Industry Analysts, such volatility continues to be one of the biggest headaches for many companies.
For example, seesaw copper prices have a great impact on electrical wiring. They skyrocketed almost 46 percent in 2010 and another 17 percent a year later, yet plunged about 10 percent in 2012, according to IBIS World, which projects modest declines through 2016.
Here’s a look at pricing trends and current conditions:
Electrical cable prices have trickled up about 2.5 percent a year since 2010, fueled heavily by the post-recession bump in construction activity. Average prices have been around $2,180 per 1,000 feet, according to IBIS World. But volatility is quite high. In its most current market report, IBIS World notes that buyers have paid prices ranging from a low of $900 to a high of $6,500.
Much of that depends on such factors as type of metal used (aluminum is more expensive while copper is the material of choice because of its conducive and corrosion-resistant properties), capacitance, attenuation, flexibility and tensile strength operating temperatures, and the plastics used to coat the inside wires (thermoplastics are the most popular type of cable jacket due to their low cost, light weight, and exceptional electrical properties).
Prices for mechanical cables have grown even more anemically over the past few years (about 1.7 percent), according to IBIS World. In 2010, it was at around $13.75 per foot. Ramping up construction, mining, oil and gas industries, as well as infrastructure improvements, particularly in developing countries, is much of the reason for it. Still, steel and oil prices are among the biggest variables that give rise to price fluctuations. Because steel prices have been relatively unstable in recent years, “suppliers have been attaching risk premiums to their product prices with the intention of protecting profit,” IBIS World notes in its recent market report.
Much of the same is true for non-electrical steel and iron wire, in which prices have grown a slight 1.9 percent since 2010. Current prices have been around $0.38 per pound but have been as high as $0.50 per pound based on supplier and month of the year purchased. Like mechanical cables, steel prices (which fell 25 percent in 2009 but rose 16 percent the following year) have created variability in prices. Like other cable and wire markets, this one is deeply affected by import pressures (which are growing at nearly 10 percent a year), the firm said. As a result, many buyers are seeking long-term contracts, as they are in other wire and cable markets.
At the heart of most forecasts in these markets is a very positive outlook for construction. For example, IBIS World estimates the total value of private nonresidential and housing construction in the U.S. will increase at an annual rate of nearly 8 and 14 percent, respectively, over the next two years.
Meanwhile, there’s positive news ahead for some markets, particularly electrical cables and insulated wire and cables, which depend heavily for their fortunes on a healthy construction sector.
According to Freedonia Group, domestic demand for insulated wire and cablescould grow almost 6 percent a year through 2017, driven largely by anticipated recovery in the housing and commercial building markets, slated improvements to aging power grids, and accelerating auto production.
Globally, the news is even better. Robust expansion in the wind energy, nuclear energy, and other green energy sectors could see the worldwide market value hit $114 billion by 2015, Global Industry Analysts reports. Telecommunications improvements, particularly base station transmission units and antenna towers for wireless-device needs, are expected to fuel growth in the overall cable and wire markets by more than 11 percent a year through 2018. The most robust gains are seen in power cables — the biggest slice of the wire and cable markets — which are expected to grow nearly 9 percent a year, according to the firm.
Electrical cable prices are seen growing at about 5.5 percent a year through 2016, according to IBIS World, due in part to import competition and dampening volatility in such input costs for metals (especially copper) and wages. Like insulated wire and cable, much of the reason is due to recovery in the housing and commercial building markets, slated improvements to aging power grids, and accelerating auto production.
Meanwhile, buyers can expect slow domestic growth in mechanical cable prices; IBIS World forecasts increases of a little more than 1 percent annually through 2016. Much of it is due to declining demand, import pressures, sluggish steel prices, declining industrial machinery investments, and weakening oil demand.
Slowest price growth is seen in the non-electric iron and steel segments. IBIS World expects those markets to grow annually at around 0.6 percent through 2016 for much of the same reasons as mechanical cable.
Volatility in prices and capacity for many of the components of wires and cables — especially steel — could throw a wrench in many forecasts. So could trade policy, including ever-rising competition from imports.
Volatility among upstream copper, zinc and lead suppliers, for example, could affect electrical cable production costs and prices, according to IBIS World. China, Mexico, Canada, and Taiwan account for nearly 80 percent of imports here, encouraged by strong growth in the U.S. dollar.
For mechanical cable and non-electrical steel and iron wire, the potential risks are seen in metal components. Good numbers of steel producers are still reeling from the recession and Chinese steel prices remain high, IBIS World reports. Steel price fluctuations could continue to make forecasting difficult.
Meanwhile, imports of non-electrical steel and iron wire (growing recently at about 8 percent a year) pose a huge threat to local suppliers, according to IBIS World.
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John Hall is a freelance writer who reports on commodities markets and procurement and supply management topics for My Purchasing Center. His website is jhallmedia.com.