The Rising Price of Copper and Its impact on Electronics Manufacturing
Used for everything from electronics to power transmission to construction, copper is an integral component in the manufacturing world. So when the price of copper fluctuates, it affects nearly every segment of our economy. Over the past year, the price of copper has nearly doubled. It currently sits at above $9,000 per metric ton, its highest price since 2013.
A Year of Ups and Downs…and Ups
As the roaring global economy stormed into 2020, copper prices charged above the $6,000 mark: a relatively stable benchmark price for the metal over the past five years. This rise came to an abrupt halt in late January when the emerging COVID-19 outbreak in China led to global fears of a cooling economy caused by a temporary slowdown in manufacturing output, particularly in greater China.
By the time the Lunar New Year holiday period ended, factory reopening protocols had been put in place which kept much of the manufacturing base offline well into March. By the latter half of that month the copper market bottomed out at below $4,700. The pricing trend reversed quickly, however, when Chinese manufacturing came back online in force, along with increased copper consumption.
Coincidentally, this was also a turning point for the rest of the world. Economies outside of greater China were shutting down, bringing the production of copper down with them. At that point, supply-side pressures took over, and the market price has since risen 70%.
Three Main Factors Affecting Copper Pricing
Like other commodities, copper prices have always fluctuated with the market. But the unprecedented conditions of the global economy throughout the past year due to COVID-19 have caused even more volatile pricing, culminating in the highest copper prices in many years. There are three main factors contributing to this escalation:
- Supply. COVID-related fear and subsequent shutdowns worldwide, particularly in key source markets like Peru and Chile, as well as processors in industrialized nations, led to disruptions in supply that are ongoing.
- Demand. Copper is the third most-consumed metal in the world. Three-quarters of the world’s copper is used in electronics manufacturing, with components such as connectors, circuit wirings, contacts, printed circuit boards, computer chips, and semiconductors all relying on it. Copper’s biggest consumer is China, and a more robust economic recovery than expected in Asia during the pandemic is, in part, driving the price increase.
- A weaker dollar. Like many commodities, copper is traded in U.S. dollars. As the dollar weakens, it takes more dollars to purchase the same quantity of copper. The U.S. dollar declined over the past year, dropping to its weakest point since 2018 and causing copper prices to rise.
These three factors combined mean higher copper prices, and therefore higher costs overall, for the electronics manufacturing industry.
What Does This Mean For Electronics Manufacturing?
Raw material prices impact every part of the electronics supply chain, including raw material suppliers, processors, manufacturers, distributors and resellers. As the price of copper rises, so do costs at each stage of production.
The reactionary nature of copper prices to both supply- and demand-side market pressures stems from a lack of good substitutes in the marketplace. In many cases there is simply no substitute for the superior properties of copper. For other products and processes, aluminum or plastic may act as a substitute, but even then there are added costs and delays involved in switching between materials. The rising price of copper affects the entire supply chain, and not every manufacturer is prepared to absorb the impact of these costs.
Has your electronics, wire harness, or cable manufacturer raised prices due to the copper price increases over the past several months? Most have, but Macrotech has not. Our supply chain utilizes long-term futures contracts to hedge against rising copper costs. We can help you hedge against this risk and more. Give us a call today at +1-408-395-5030 to discuss further.