CDA Market Trends Forum Looks at Major Copper Uses

January 15, 2003


NEW YORK - More than 120 executives of leading U.S. copper producers and fabricators heard guardedly optimistic reports at a market trends forum hosted here in December by the Copper Development Association. Experts representing the automotive, power utility, plumbing fixtures and air-conditioning industries led the forum and were followed by an economist providing a market overview.

Morris Kindig, president of Tier One, an automotive market consulting organization, told forum participants to look for an increased use of copper in automobiles a few years after the industry introduces 36/42-volt electrical systems. Higher voltage is needed to meet consumer demand for more electrical and electronic features. But automotive copper use may decrease somewhat over the short term due to finer gauge wiring in the harnesses made possible by the higher voltage. By the end of the decade, however, Kindig says new electrical features such as integrated starter-generators and X-By-Wire* systems, plus entry into the market of copper-intensive hybrid vehicles, should restore and possibly even increase the amount of copper in vehicles.

Kathleen Kelly, vice president, Markets & Regulation Practice Leader for Stone & Webster Consultants, described the changing U.S. electrical power industry and the need for new generating facilities. According to Kelly, the industry must first pass through a period of imbalance, and the small oversupply in generating capacity that currently exists will evaporate before the end of the decade, since 43% of new generating capacity announced in 2001 has been cancelled or delayed. In fact, she says, plants representing only around 210,000 MW of the 660,000 MW in planned new capacity are sufficiently advanced to be completed by 2009. Complex economic, demographic, environmental and regulatory issues make predicting the future shape of the electrical industry difficult, but two key factors ¾ the need for improved reliability and calls for distributed generation facilities ¾ are inherently beneficial to copper.

Three speakers addressed copper's all-important housing-related markets. Annette Meyer Holley, principal international consultant for BSRIA, a U.K.-based market research organization, saw favorable prospects for copper in the steadily growing demand for air-conditioning equipment. Growth has been especially strong in China and other Asian countries (exclusive of Japan), and in Southern Europe. While the recent economic downturn has led to excess inventory, particularly in China, Holley says copper consumption can ultimately be expected to benefit, both from a need for more wire and cable as infrastructures expand to accommodate the new electrical demand, and from an increased use of copper tubing in air conditioner heat exchangers, where the metal promotes high efficiency.

Linda Mayer, senior vice president, Marketing and Product Development for Moen Incorporated, expressed the view that copper consumption should continue to gain from the U.S. housing market. Mayer acknowledged that new housing starts and existing home sales are expected to decrease somewhat over the next few years, but the faucet market (an important outlet for brass) will remain strong, as homeowners increasingly opt for upgrading and remodeling their dwellings. According to Mayer, the repair and replacement market is nearly three times larger than that for new home construction in terms of the number of faucets sold annually. And, while competition from plastic plumbing products has been evident for many years, Mayer sees a clear opportunity for the copper industry to strengthen its position by stressing the reliability and value of high-quality brass products to consumers.

Looking a bit farther down the road, as-yet undiscovered opportunities for copper products may arise, if tomorrow's housing units adopt the modular components and adaptable environments envisioned by MIT's Digital Design Laboratory and School of Architecture and Planning. Kent Larson, the laboratory's director, told forum attendees that open-source concepts similar to those that are now broadly accepted in the manufacturing and computer industries, may lead to greatly improved efficiency and economy in home construction. New features might include walls that double as photovoltaic cells and premanufactured structural elements that serve as conduits for integrated power, signal and heating/cooling distribution systems. The distinctions between materials and electronic devices will become blurred, says Larson, and all building materials will have some computational component. That concept alone is highly promising for sustained copper use.

Bringing forum participants back to the present tense, Kevin J. Bannon, executive vice president and chief investment officer for The Bank of New York offered an analysis of what he expects will be an encouraging economic outlook for the coming years. Many economic signs point to recovery, according to Bannon. That, too, is good for copper, since the growth in U.S. copper usage has outpaced GDP over the past decade.

(*) X-By-Wire refers to systems under development that would assist or replace traditional mechanical or hydraulic systems with an electric or electronically
controlled connection between parts of the system.