Specialty contractors in the U.S. that use extensive amounts of copper-based products have been squeezed in recent months, as never before, by sharp rises in copper prices. But now there are some indications that the copper price spike may have peaked.
"The acute tightness in the market right now is probably about as bad as it is going to get," says John Mothersole, the Washington, D.C.-based copper specialist for construction forecasting firm Global Insights Inc. He notes that after a few years of excess capacity, copper supply has been exhausted by global economic recovery, particularly large demand from China. This created a supply shortfall of 270,000 tonnes in 2003 that will jump to 550,000 tonnes this year. The price of copper cathode also rose from 76¢ per lb then to $1.29 today.
ENRs 20-city average price for copper water tubing is up 32% from its June 2003 level. Numbers compiled by the Federal Bureau of Labor Statistics show a similar rise. The BLS April producer price index for copper pipe is up 34% from a year ago.
Many mechanical contractors are trying to avoid the brunt of the surge in copper prices by switching to alternate materials when possible. Dmitri Bobev, regional manager in Florida for Mesa, Ariz.-based Delta Mechanical Inc., says his firm is looking to increase its use of CPVC piping. He claims it is less expensive than copper piping in normal market conditions, and its recent price hikes have been less dramatic.
"We will continue stocking copper, but I think it will be used less and less" if copper prices stay sky-high, says Todd Hogle, purchasing agent at Karlsen Plumbing, Racine, Wis. He says his company also is shifting toward CPVC pipe whenever possible. But there are many jobs where there is no real alternative for copper, notes Danny Fowler, project manager at Penco Electrical Contractors, Morrow, Ga. He says the price it pays for 1Ú2-in. copper conduit increased from $11.40 per hundred in February to between $28 to $32 now.
As a result, Penco has been working to reduce its exposure to copper price spikes, including holding its bids for only 14 days instead of the typical 30. Penco also is trying to be more precise in estimating copper product it will need. On a recent job, the firm found a way to squeeze its copper conduit needs from 480 ft to 440 ft.
Mechanical contractors are also trying to add material-price escalator clauses to their contracts. Many private-sector clients are willing to include escalator clauses, or to work out a similar arrangement in which they also would benefit if material prices fell, says Steve Hancock, vice president of estimating for Foley Co., a specialty contractor based in Kansas City, Mo.
But looking for escalation clauses in the public sector is often a lost cause, he adds. "[Between] the price of gas and copper, its gotten to the point where I cant afford to go to Delaware to do a job," says Charles Hayes, president of Baltimore-based Hayes-Osborne Plumbing and Heating Inc. Soaring commodity prices have forced Hayes to trim his companys staffing "to the bone," he says, adding that fierce competition for work among plumbing and heating contractors has made matters worse.
Some estimators offer hope that the spike in copper prices may have peaked and that prices for copper and copper products might even decrease somewhat in the next few months. "Copper wire prices have come down 1 to 2%" in the past few weeks, says Fowler. "I think the situation may finally be changing."
But dont expect prices to fall anywhere near to where they were before, warns Mothersole. Global Insights predicts that copper prices will remain above $1.19 per lb for the remainder of the year, before declining further in 2005 and 2006. "We see the market eventually giving up 20 to 25% of the price spike. That still leaves a net gain of over 20%."
