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Explaining the 2021 Spike in Material Costs for Electrical Contractors

September 23, 2021

As an electrical contractor, you have no doubt noticed the sharp increase of prices for wire, cable, and connectivity products in 2021. These rising costs have likely affected your budget projections for this year and are negatively impacting your profits. Why have electrical supplies become so expensive? In this article, Charter Estimating’s experts will discuss the top three reasons:

  1. A worldwide shortage of copper, silver, and other raw materials
  2. A disrupted supply chain due to the pandemic
  3. China’s stricter import policies for scrap metals

Worldwide Shortage of Raw Materials

A root cause of steep prices for electrical products lies in a decreased supply and an increased demand for the raw materials that are required to manufacture them. This is primarily because lawmakers worldwide are striving to reduce carbon emissions and push for greener infrastructure.

Copper

Copper is a highly conductive metal, making it vital to the manufacture of electrical products. The generation, transmission, and storage of electricity all require copper. As a result, copper plays a pivotal role in the renewable energy system. One expert went as far as claiming that copper is “the new oil.” The demand for copper has skyrocketed as governments in Europe, the United States, and China continue to transition from dependency on fossil fuels to electricity as a renewable energy source.

The Bank of America stated in early May that copper prices have risen to $10,000/ton for the first time in a decade and could soon reach a record high. What is more, they predict that copper prices could hit $20,000 per metric ton by 2025. The European Copper Institute predicts that worldwide copper consumption will rise more than 40% by 2035. Combine increased demand and decreased supply of copper with the weakening value of the American dollar against other currencies and you have a recipe for soaring copper prices. 

Silver

While copper remains the most important material to industrial wire and cable, silver is commonly used to plate copper conductors in applications that involve higher temperatures. Silver has always been more expensive than copper. However, the Silver Institute's World Silver Survey forecasts a 33% climb in silver prices this year to an average annual price of $27.30 per ounce with the potential to reach $32 during 2021. Silver hasn’t cost more than $30 per ounce since February 2013. The World Silver Survey also predicts a 15% increase in total silver demand this year. This is partly due to the shift in the U.S. toward alternative renewable energy as industrial metals such as silver are used in the production of solar panels.

Wire Insulation, Jacketing, & Wood-Based Packaging Materials 

Resins and polymer compounds used in the insulation and jacketing of wire and cable have also increased in price by 10-25%, depending on the material. The spike in lumber prices has affected electrical contractors as well. Manufacturers have announced a 5-10% increase in the cost of wood-based wire and cable packaging materials, such as plywood, wooden reels, and cardboard packaging. Consequently, manufacturers have increased the prices of their electrical products to compensate for rising costs of production. 

Disrupted Supply Chain as a Result of the Pandemic

The COVID-19 pandemic disrupted and crippled the supply chain of materials required to manufacture electrical products. Chile, the world’s leading exporter of copper, has been struggling to keep up with demand as miners fell ill with the coronavirus and engaged in labor union strikes. Leading producers of silver, such as Mexico and Peru, are still recovering from pandemic lockdowns that caused temporary halts at major mining operations.

The worldwide production of refined copper plummeted by about 24% during April-December of 2020, and the overall domestic production of refined copper in the United States dropped by nearly 40% in the first quarter of 2021. In January 2021, copper prices surged to almost $8,000 per ton due to a lack of supply of copper concentrates. Ships that were loaded with goods from China and other countries stalled in early 2020, and movement of those goods is just beginning to pick up. In addition, the costs of freight and transportation have also increased market-wide as the global economy recovers from the pandemic.

China’s Stricter Import Policies for Scrap Metals

China is both the world’s highest consumer of copper and a top producer of it. This is largely due to their increasingly aggressive sustainable energy initiatives. China’s stricter import policies for non-ferrous scrap metals have affected the markets. Three years ago, China enacted a campaign that halted the shipment of scrap metals and they revised their specifications for high-quality scrap metal. These new standards prohibit the import of scrap metals that include non-metallics such as paint, enamel, and plastics that harm the environment when smelted. Scrap metal suppliers from many countries, including most of Latin America, the U.K., and the United States, can’t consistently meet China’s stricter standards. This issue has further influenced the rising costs of copper-based electrical products.

How Charter Estimating Can Help

At Charter Estimating, our electrical cost estimators are experts in the field of electrical construction. We keep ourselves up-to-date with industry trends and are always searching for the latest ways to benefit your bottom line as an electrical contractor. This includes finding alternative electrical products that are both reliable and cost-effective for your business when necessary. Schedule a consultation with one of our electrical cost estimators today and get 10% off your first estimate!

 

Resources:

https://www.cnbc.com/2021/05/06/copper-is-the-new-oil-and-could-hit-20000-per-ton-analysts-say.html 

https://www.silverinstitute.org/silver-supply-demand/ 

https://www.marketwatch.com/story/global-silver-demand-poised-to-rise-this-year-prices-could-jump-more-than-30-report-11619105863 

https://www.lapptannehill.com/news/post/why-are-prices-skyrocketing-in-wire-and-cable-products

https://www.cbs8.com/article/news/local/why-construction-materials-are-going-up-in-price/509-94ff684c-71a5-4f56-99c2-8f872950744e