Copper price hikes fuelled by China’s new great leap forward

Concern is growing in the industry over volatile copper prices following a 74% increase in the cost of the metal in the last year. It is the latest material to experience violent swings in prices due to increased construction activity in China in recent years. Steel prices, for example, were badly affected by the Chinese market in 2004.

QSs raised fears about the impact of the copper hikes in the RICS construction survey last month as they will likely impact services, including electrical installations, copper pipe work and copper wiring. Figures from the BCIS show that between May 2005 and May 2006 there was a 74% rise in the price of copper pipes and tubes.

Jonathan Park, partner at Yorkshire-based Appleyard and Trew, said the industry would definitely suffer.“Copper costs are now affecting services,” he said. “It will have an impact on the industry and on our work.”

BCIS director Joe Martin said the hikes could particularly affect contractors working on framework deals. “They pay contractors who pay for materials, so the price rises are more significant for them.”

Park said the China effect on prices was significant: “China is having a huge impact on the rise in price of raw materials.” He estimated that copper prices had risen by as much as 30% in less than six months.

China consumes around 300,000 tonnes of copper every month, 200,000 tonnes of which are domestically sourced, and the remaining 100,000 imported. However, the country has pledged to manufacture more copper itself, which could see prices ease.

China is a having a huge impact on the rise in the price of raw materials

Jonathan Park, Appleyard and Trew

Martin claimed in the longer term copper prices would be less volatile. “There is no shortage of manufacturing capacity. Plus when they export it will be cheaper and better,” he said, adding the Chinese would make a “great leap forward”.

Davis Langdon associate Peter Fordham said the market was still in a state of flux: “Earlier this year it looked like the bubble had burst, but since then it seems as though it is staggering back up.”

According to Fordham, between May and June, the London Metal Exchange prices peaked to as high as $8,500 (£4,617) per tonne, then dropped by 25% at the end of June. “To put it in context, a year ago the commodity price was $3,000 per tonne. By the time it goes into buildings you won’t see such a huge difference.”

With the exception of China, copper demand was in fact down globally. “Even China’s was up only by a fraction. It’s been at only 1-2% a year which isn’t that huge,” he said.

“With supply and demand on the increase, and with the world becoming more industrialised, we will see more demand for copper.”