Wiring - Cabling - Devices
“We’re living the perfect storm” • Why today’s wire & cable prices are what they are
“Electrical contractors are at tremendous risk if they do any type of fixed-price contract.”
By Anthony Capkun
July 6, 2021 – Wire & cable prices continue to climb, making estimating, quoting—heck, even getting product in-hand—a challenge for electrical professionals.
To quote from our May 2021 edition, one electrical distributor highlights unpredictable price increases as the reason it cannot offer any price protection. Some electrical contractors are holding their prices for just 3 to 5 days, rather than 60. Meantime, “Copper wire and cable” shows a 4.1% increase from just February 2021 to March 2021 (U.S. Bureau of Labour Statistics’ Producer Price Index, Table 9).
To better understand what is happening in the wire & cable market, I turned to Shelley Bacon, the CEO and chair of Brockville, Ont.-based Northern Cables …
EBMag: Shelley, you’ve been in the industry a long time; you live and breathe wire & cable. What’s going on around the world that’s causing the strain on something as important to the electrical trade as wire & cable?
Shelley: It’s certainly a topic we discuss with customers and suppliers, and anybody related to this industry. First and foremost, we have to recognize the actions of governments and businesses around the world. Going back to the early days of the pandemic, there was a lot of infrastructure shuttering, including blast furnaces and aluminum pot lines.
When you close down something that makes all of your iron, which goes into into steel-making, or stop your ability to produce aluminum on a pot line… well, these are facilities that you don’t just close down for the weekend! These types of facilities go down for months, if not years. So the act of closing or shuttering even one of these is a big event, not to mention costly.
We’ve also been in an era of zero to 1% interest rates for a long period, and we have pent-up demand for new products. People have moved past the initial shock of the virus; they want new cars, new houses, a new vacation place, so the consumer is driving a lot of new, unplanned demand.
In short, the effects of the pandemic are building upon themselves. We are living the perfect storm.
EBMag: So is it a case that some of these facilities that produce the raw materials you use to make wire & cable have been shuttered, and maybe haven’t come back online yet? Has existing supply been all bought up?
Shelley: Not exactly. It’s a combination of events. The majority of our copper comes from South America these days. Yes, there are copper mines around the world, but primarily it comes from South America. They, too, have been dealing with Covid, and some of the copper mines have had outbreaks, as well as some labour disruptions.
Copper is one of the first metals that analysts observe, and if there’s something going on with copper, everybody jumps to conclusions. Plus, not all manufacturers are up to speed, and many industries report they cannot find employees to staff their operations.
EBMag: As a manufacturer of wire and cable, how are you rolling with the punches?
Shelley: As you can imagine, we consume a lot of copper and aluminum. These are not things that you can simply choose to buy from one vendor one day, and not the next. To buy the amount of metal we consume, we have to sign long-term contracts with producers, and we have multiple sources and multiple contracts in place.
This means we agree to purchase so much metal per week, per quarter… whatever the case may be. In our case, our contracts stipulate that we buy our metal on the average. So, as the price of metal changes every day of the month, the supplier will average out those daily prices by the number of days in the month. This is the average price.
Keep in mind, we don’t get extended terms to pay for metal; it’s a short payment schedule.
Now, anyone can look up copper or aluminum prices on the COMEX (commodity exchange) today, last week, and so on, and conclude those are the actual prices. But we don’t get to pick the price of metal because we buy it on the average.
Here is what on the average means for us: we buy metal in the first week of the month for the going rate. As the weeks progress, let’s say the price of metal goes up 10, 20, 30, 40, 50 cents a pound… when we get to the end of the month, our supplier will do the math and say, “By the way, you know that metal we sold you in the first week of the month, which you’ve already converted into product and sold? Yeah, we didn’t charge you enough for it, so we’re sending you another invoice to make up for the shortfall”.
And all of those numbers fluctuate month over month. Let’s say a snowstorm delays my shipment; it was scheduled to arrive April 30, but it arrives May 1. Well, now we pay a different price, because we flipped into another month under the program.
Some people suggest buying futures contracts for these commodities—and we have done that for very specific applications at specific points in time—but the danger is getting stuck with that contract.
With a futures contract, I could buy metal three months out—and pay a hefty premium to do so!—but it is not reflective of current prices. So a customer may see the price of copper go down, yet we’re stuck with an inflated price because of our contract, and we lose that customer’s business. As a manufacturer, we have very few, if any, protections.
EBMag: So starting right from where the product is made, there really isn’t much wiggle room, and definitely no practical price guarantees for someone like yourself. I now understand why price guarantees are hard to come by these days. I’m glad you explained that for me.
Shelley: The only true guarantee on pricing—the only way to protect yourself—is to buy all the raw materials you need today. You know what you paid for it, and you put it on your floor. But that’s impractical, because there’s neither enough space nor enough money to buy all the raw materials you’ll need. So we’re really in a very difficult situation.
EBMag: This may sound overly simplistic, but it sounds like—just as you are subject to the whims of the raw material providers—so, too, are electrical contractors.
Shelley: I would not want to be in their shoes, having to bid on a major project, where a lot of the materials are subject to unpredictable price escalation. Electrical contractors are at tremendous risk if they do any type of fixed-price contract.
The truth of the matter is any kind of price guarantee comes at somebody else’s expense. It will be borne by the manufacturer or the distributor, but somebody has to wear that risk. Sadly, it’s just the nature of the business.
EBMag: Is there anything that you see in the market that gives you a glimmer of hope? That there may be a light at the end of the tunnel?
Shelley: For now, we have to continue to raise our prices; not because we’re sitting here trying to be greedy, but because the price increases are hitting us so fast. Some people may focus on prices last week or last month, but those prices are already ancient history.
If you’re in this business, be very careful what you’re buying, what you’re building, and what you’re selling it for. If you have inventory that you think you can sell for a profit, think again; your replacement cost will exceed your profit.
The world cannot continue to absorb this type of escalation; something has to happen. The best thing I can suggest is this: the problem is going to solve itself. But it may not solve itself in a nice, gentle way.