Copper prices supercharged

MIAMI – First it was drywall, then it was the skyrocketing cost of concrete pushing up the overall price of construction. Now, copper is the latest raw material with rapid price increases that is affecting companies from Miami to Shanghai.

Demand for copper has more than tripled the price of the metal, used in plumbing and electrical work, over the past few years. Last month, copper traded at a record $4.04 a pound.

“It’s nearing the price of cheap gold,” says Walid Wahab, President of Wahab Construction, a firm that specializes in high-end interior construction. Wahab said he was shocked recently when pricing one project to find that the cost to wire the building had tripled.

While essential building materials like concrete, structural steel and drywall have leveled off in price, that’s not true for copper, a conductor used to wire not just electricity but also telephone and data lines in buildings.

While the recent spike in prices is hitting electrical contractors especially hard, it shouldn’t have a big effect on overall construction costs. Contractors estimate that electrical work usually accounts for about 10 to 20 percent of a project’s total cost; of that, copper about 1 to 2 percent. Compare that to concrete, which can account for as much as 40 percent of project costs.

But for the companies that do the electrical work for buildings, “our exposure to copper is pretty large,” said George Haufler, president of Daniel Electrical Contractors in Miami. The electrical contractor, owned by Texas-based Integrated Electrical Services, wires many of the new commercial and residential developments across South Florida.

When copper hit that peak in May, it meant Daniel was paying about $4 a pound, rather than $2 six months earlier, said Haufler. The price has since dropped to about $3.50.

Haufler says it’s a global supply and demand situation that’s driving the numbers.

Vast construction in China has been one of the main drivers of demand worldwide.

But recent strikes and other labor disputes at copper mines, most recently in Mexico, have also restricted supply.

UBS AG said in a recent note that it expects copper supply to increase more than 5 percent but demand to rise almost 6 percent, according to Bloomberg News. That deficit should keep copper prices high.

UBS expects copper to average $2.80 a pound for the year.

The price of copper even showed up in the most recent Federal Reserve “beige book” report. The report, a summary of current economic conditions, cited copper being among the most common building materials products reported for higher prices and cost pressures.

The only alternative to copper wiring is to use aluminum, which is increasingly becoming more affordable for owners, according to Haufler, who said that some times the savings can be as much as $500,000, depending on the size of the building. Copper has a lower resistance and is a better conductor than aluminum.