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Copper Report

No Substitute

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In recent years, manufacturers have found little reason to shift from copper to competing materials.

The past two years have been not only characterized by COVID-19 but also by unexpectedly strong economic growth across many geographic regions. The increased demand for copper, together with production disruptions at key copper mines, created an environment of high relative copper material costs.

Copper is the main raw material for many applications, the majority of them being electrical applications. However, cheaper alternatives exist, usually offering lower performance. Those include aluminum, plastics, steel, stainless steel and optical fiber, etc.

Copper has been selected for these applications in the past as it delivers the best performance for the given application. Alternative materials will have different performance characteristics and the material decision will be based on whether the different performance is justified by the costs.

Material substitution is a complex decision and has implications on many other design and production areas, such as increased demand for other materials in the same application, changes to the design and frame of the final product, to production process, to complementing systems, warranty issues, lack of knowledge of the installers etc.

When does copper material substitution happen?
Generally, copper substitution happens for two main reasons:
  1. Using alternative materials instead of copper significantly reduces the costs of the entire project.  This might be the case, for example, for some power cables, where the material of the cables bears a large percent of the total project costs. In contrast, building wires represent only a very small percent of the construction costs of a building. Using aluminum as building wire does not create significant savings even if building standards allow their use.
  2. Substitution also happens where alternative materials offer further benefits, in addition to lower costs. Examples of this include the lighter weight of aluminum overhead lines; easier and lower costs installation for plastic plumbing tubes; or better performance due to new technology such as optical fiber telecommunications connections.

A decision on material substitution is rarely made based on relative material costs alone. While key drivers of substitution are relative material costs and cost pressure by end users, standards, conductivity, weight of the material, space performance, repairability, performance requirements of the applications or the emergence of new technology can override the impact of relative material costs.

Over the past 10 years, copper substitution has continuously declined or stagnated. In 2020 it was only 0.95 percent of the copper use and the percent substitution rate (net substitution as a percent of copper use) has been stagnating over the last five years. However, we expect this to increase slightly over the next two years driven by the relative material costs.

When are copper material costs high enough to start material substitution?
Historically, there has been a correlation between the copper-aluminum price ratio and the extent of substitution. In the past experience, when the copper-aluminum price ratio reaches 3.5-4 (when copper is 3.5-4 times more expensive than aluminum for the same weight), it is thought OEMs and end users might start actively considering how to reduce copper material costs. However, this ratio might need to be higher for end users to take action. 

As copper applications are very diverse, the impact of higher material costs on these applications is also specific: 
  • Applications such as some power cables and external telecommunication cables have already experienced ongoing substitution and higher copper material costs will only accelerate this development. 
  • For other applications, such as plumbing tubes for residential construction, or copper roofing, substitution has reached its limit, as what was possible to substitute has already been substituted in the past. Therefore, higher material costs will not significantly influence substitution for these applications.
  • Some other applications like winding wires or alloys in friction applications require new research and development into how to use alternative materials beyond where these are currently used. Higher copper material costs will trigger this R&D and might produce solutions and new designs using less copper or partially replacing copper by alternative materials. The impact of this new R&D will be felt later, perhaps one to two years from now.
  • Still a number of copper applications have limited exposure to substitution. These are electrical contacts, small-diameter wires, winding wires in performance motors and power transformers, foil applications, high-performance alloys, etc. Here alternative materials cannot deliver the specs required and copper will continue to be used with low level of substitution.

Importantly, experience shows that a large share of this substitution is reversible. That happens: 
  • If copper’s relative material costs decline below a certain threshold, or,
  • If end users and consumers face functional issues with alternative materials (such as corrosion, connection issues), or,
  • If other influential factors on material decision making (e.g. space performance, energy efficiency) become more relevant in the material selection.

When will the cost reduction be achieved by reducing the copper used:?   
When will the cost reduction be achieved by reducing the copper used?

In most cases OEMs and manufacturers prefer reducing the volume of copper used (miniaturization) to completely replace copper with other materials. This helps to keep design, complementary systems and installations similar as before, but still achieve reduction of material costs without the additional risks and costs of completely changing the material. 

Miniaturization is an ongoing development, such as with heat exchangers in air conditioners or other cooling devices where the diameter of copper tubes has declined to its current five to seven millimeters. A/C manufacturers are asking for a reduction of the tube diameter to four millimeters to further reduce material costs. However, a reduction to four millimeters faces pressure issues in the system that need to be addressed by new designs before the additional miniaturization could be implemented.  

Electrical standards also limit the potential of miniaturization as wires and cables have defined diameters for certain applications. Also, in these applications the conductive material needs to carry an increasing current requiring rather more conductive material than less.

How will copper substitution play out over the next 1-2 years?
Although small in size compared to overall demand in 2021-2022, we expect accelerating substitution for applications where short-term substitution is feasible. We already observed an increasing substitution for some renewable power cables, some larger diameter building wires and automotive wires, for commercial plumbing, some industrial tubes and many alloy applications.

Many other electrical applications, such as winding wires in electric motors and transformers, electrical PSSF (plates, sheets, strips and foils), and some power cables, face pressure to improve performance and transfer more electricity within the existing frame. Here, alternative materials have limitations on space performance and on the acceptable level of heat produced. For these applications, we expect substitution of copper will be limited in the near future.

After 2023, copper substitution is expected to slow down as all immediately achievable substitution has been implemented. However, further increases in copper material costs can provide new impetus for substitution. 

We expect stricter standards, energy efficiency regulations led by green transition and increased performance pressure on the grid to result in gains based on its superior conductivity.

What are other relevant factors in material decision making?
An excellent example to explain how material decision is carried out is the example of winding wires in electric motors. Here manufacturers can choose between copper or aluminum winding wires. 

High-performance motors, including industrial and motors in trains and EVs, need copper winding wires for the performance as aluminum’s lower conductivity and space performance does not meet the specs required.

Substituting copper winding wires with aluminum winding wires often requires the use of more expensive electrical steel, which then offsets some of the original cost savings from using aluminum. Aluminum winding wire motors are larger and might have some technical issue when continuously working.  Also, aluminum winding wire motors tend to have larger electrical loss and generate more heat that often restricts the use of them without sufficient cooling.

Therefore, the use of aluminum winding wires is restricted to smaller motors, often below 10 horsepower, where there is no space restriction and where the motor does not need to work continuously. Some household appliances, such as compressors, fans are applications where they can be used, but any further substitution is slow.

OEMs can reduce the amount of copper used in electric motors by opting for different technologies, such as permanent magnet motors. However, these types of motors are more expensive due to the neodymium magnets used, offsetting the original reduction.

The pressure on OEMs is growing to design motors that are more compact in size and more powerful in performance. This can be best delivered by copper due to its superior space performance.

How does green transition impact copper substitution?
Green transition has become a major focus over the last few years. Copper use is affected by an increasing renewable energy generation, the use of electric vehicles and the related need to upgrade the grid, requirements to improve energy efficiency and space performance of existing systems, but also reduction of carbon footprint via recyclable materials with longevity.

The move toward renewable energy affects copper demand and substitution in many ways. Renewable energy generation is capital intensive and needs to compete with thermal and nuclear energy. 

Therefore, project design is under cost pressure and many renewable projects, especially wind, use aluminum power cables as far as it is possible. The lower weight of aluminum cables also helps to reduce installation and maintenance costs in vertical installations of wind towers.

On the other hand, submarine cables connecting offshore wind farms to the grid tend to be copper, as the repair cost of submarine cables is high and operating companies tend to rely on copper submarine cables with their proven track record. Once these submarine cables reach land, they tend to keep the same conductive material in the land cables. 

Solar energy generation is less exposed to substitution with small diameter wires connecting solar panels made from copper as aluminum would generally be too fragile.

Overall, copper products’ high electric and heat transfer, reparability, longevity and recyclability advances copper as a material on the green agenda in the future.

Is substitution similar across geographic regions?
While drivers of substitution are very similar across regions, the weight of these drivers in the material decision might be different.

Interestingly, developed countries are more advanced on substitution as they have more technical experience with the use of alternative materials, and can minimize risk of failure. 
Some companies in the Far East put strong emphasis on guaranteed supply (electricity, water, appliances) without failures and will prefer using the “proven” material copper, even though this might be more expensive.  Some other developing countries might have limited manufacturing and installation experience with alternative materials and will therefore prefer copper.

In China, the largest copper-using region, substitution as a percentage of the copper use is lowest. However, Chinese substitution trends are changing as the economy moves to a different economic model. Cost focus and more openness to the use of alternative materials will become more relevant.

How is copper substitution relevant for metal service centers?
Copper and alloy service centers might notice a change in demand as the result of higher copper material costs. This can relate to miniaturization where OEMs might ask for thinner rolled copper products or foils or rods.

As the electrical complexity of systems increases, more electrical and control wiring is required. This can lead to increased demand for smaller diameter wire rods. 

Copper plumbing tubes are still preferred for complex plumbing and water systems that require longevity or for larger diameter tubes. However, substitution is likely to increase in these applications.

New R&D into more efficient use of copper products will likely require service centers to stock new products and shapes. Some new alloys might need to be created that are lighter or more resistant for delivering new expectations on the materials.

We expect increased requests from OEMs for green copper. Here the Copper Mark could support green material sourcing.

In terms of overall demand, we expect the impact of the substitution to be  largely offset by the general increase in demand for copper products.  However, we do expect some stagnating or declining demand for some alloys shapes, casting, and some tubes over the next two years. 

[Krisztina Kalman-Schueler of DMM Advisory Group works closely with the International Copper Association Ltd. to regularly produce a global survey on substitution. Please see further related information here: 
https://copperalliance.org/resource/copper-substitution-remains-low-in-2020/ ]


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