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Electric Way plays a prominent role in the distribution of cables and wires in the region including cable management systems and accessories. Copper is the primary raw material used in power cables and constitutes X% of the final cost. Copper is a volatile commodity and hence the business of cables is not just about stocking and selling, but also managing commodity prices.

We understand the negative impact of volatility on consumption. Price volatility increases economic uncertainty which in turn stalls or delays projects. Understanding the trade of copper as a commodity, hence becomes an important part of running our business.

About Copper

Copper is a soft, malleable and ductile base metal known for its high thermal and electrical conductivity. This makes it ideal as a conductor of electricity giving power cables high efficiency. It is equally important for building material, and as a constituent of various metal alloys.

It was first harnessed by humans at least 10,000 years ago and has been used to produce almost everything from coins to ornaments. As a mineral, copper naturally occurs throughout the earth’s crust in both sedimentary and igneous rocks. The outer 10km of the earth’s crust contains approximately 33 grams of copper for every tonne of rock.

Copper is used today to manufacture a variety of products necessary for modern life, from cars to electronics. Perhaps it is because of this the demand for copper has grown in line with global economic growth, making it a reliable metal with which to track the business cycle over the long term.

It has long been understood that commodity prices are inherently more volatile than many other consumer goods simply due to something economists refer to as price inelasticity. In other words, if the demand for copper suddenly surges, the global output cannot respond immediately. Mining output cannot be increased quickly and nor can consumers substitute one metal for another if prices rise or fall.

Volatility

It has also been established that financial markets (derivatives) do not govern prices except political shocks or economic incentives that can affect supply or demand. However, what does reduce volatility is low-interest rates that reduce inventory carrying costs allowing consumers to hold greater stock. Thus, fundamentals remain the dominant factor in determining commodity prices, not the large and growing influence of financial instruments.

Copper futures are widely traded on the London Metal Exchange (LME), at the COMEX and on the Multi-Commodity Exchange in India. The standard contract is 25 MT (Metric Tonnes). Copper is the third most widely used metal in the world. Chile accounts for over one-third of world’s copper production followed by China, Peru, and the United States. The biggest importers of copper are China, Japan, India, South Korea and Germany.

It is worth noting that, due to delayed data on supply and demand, the price of copper tends to trade more on market sentiment based on economic indicators, news, and money flows in the broader economy.

One must also keep in mind that prices are based on demand which often has a twin peak. It peaks once when an economic development in a region starts to take shape, and much later when it approaches a replacement phase.

The Future

Copper will continue to stay in the dominant position for metals and its demand will keep rising. A rising demand means that while prices may be volatile in the short run, they will continue to rise. Copper is essential to the technology underpinning electric vehicles as it is used throughout the vehicles themselves, their charging stations and support infrastructure – due to the metal’s durability, conductivity and efficiency. Electric Way is making a strong foray in the domain of Electric Vehicle Charging equipment and accessories, and we are part of the coming electric wave.

Volatility will be governed by the economic performance of the emerging markets like China and India. As the global demand for transportation and housing infrastructure rises, so will the prices. The lag on the supply data, political unrest in South America (largest producer) will impact prices.

Atheeqe Ansari is the Founder and Managing Director of Electric Way.