Copper Shortage Looms for Building Sector
New home builders and developers are being warned to expect higher costs for electrical work as strong demand pushes the
international price of copper to a 16-year high.
Copper prices have increased to US$2877/tonne on the spot market, an increase of 70 per cent over the five-year average,
with a 17 per cent surge in the last four weeks. Copper inventories are under pressure due to strong demand from China,
an awakening of the European and Asian economies, and supply disruptions caused by mudslides in Indonesia and strikes in
Peru.
Around 50-60 per cent of all copper production is for the cable manufacturing industry. The rapid escalation of prices
means costs will inevitably flow through to developers and contractors, and ultimately to property owners and investors.
The spike in international prices comes at a time when the building and development sector is at full stretch, and there
are concerns that contractors and their customers will face additional costs unless supply contracts have been
negotiated in advance.
“We are aware that manufacturers have absorbed a lot of the additional costs in recent months, but the latest escalation
of copper prices has been so rapid that the additional costs can not be recovered on fixed price contracts,” says Ray
Barbara, Chief Executive of the Electrical Contractors Association of New Zealand.
“Developers and new home builders need to realise that it’s impossible for electrical contractors to base their costs on
fixed prices in the medium term. Electrical contractors should include cost escalation clauses in the bids they present
to customers.”
“The situation is volatile and extraordinary in both the magnitude of the increases and how frequently they have
occurred,” he says. “The effect is being compounded by increased labour costs, which have become even more sharp in the
wake of the devastating floods in the lower North Island.”
“Homeowners and developers should be aware that the cost of electrical work is likely to rise, and to make sure that
their specifications are appropriate for their needs and their budget. We see the current situation remaining for the
medium term. It will require prudent management by developers, contractors, specifiers and their clients to ensure
electrical projects are completed within budget, without any one party being caught with the full impact of the
increases,” Mr Barbara said.
The strong New Zealand dollar has provided only limited protection against the rampant copper index. The New Zealand
dollar has appreciated by more than 20 per cent in the past six months, whereas the cost of copper, paid for in US
dollars, has surged by more than three times the rate of currency appreciation. While the high prices have renewed
interest in the commercialisation of new copper reserves, it is unlikely these will have an impact on copper prices in
the near future. Unmined copper reserves are mainly in areas affected by political instability. With demand remaining
strong, metal industry commentators are forecasting prices to remain high for the foreseeable future.