Managing the Roller Coaster of Commodity Price Fluctuations

Wire and cable conductors are typically constructed of copper or aluminum and can be approximately a 20 percent material cost on commercial construction projects. Because these costs fluctuate and depend on supply and demand, how can you minimize the risk of metals volatility?

Copper Price Fluctuations

As wire and cable conductors are mostly composed of copper or aluminum, prices fluctuate daily as part of commodity trading. Commodities have value and can be traded on open markets, altering in price according to supply and demand, financial market volatility, or even politics. Many factors can affect the rise or fall of commodity metal costs, which is what makes it very hard to predict and, in turn, plan a project.

The primary metal used for electrical conductors is copper. Most NA-based manufacturers procure copper at a value based on COMEX copper exchange, which is traded on the Chicago Mercantile Exchange's (CME) futures market and is tracked daily. Traders agree to buy or sell a particular product at a given date in the future at a specific cost.

Why Contractors Struggle With the Price of Copper

When construction contractors estimate a project, they can’t predict what the price of copper will be when the product is required on the job site. It can sometimes take several months from the time a construction project is out to bid to when the bid is awarded. Additionally, the time from when the project is awarded to when the project is completed can take several months or up to two years or longer. During this time, metal prices are changing along with the cost of the cable. For example, early in the COVID-19 pandemic, copper prices hit their lowest levels since January 2016. Subsequently, from late March 2020 through early September 2021, prices nearly doubled, while they have since fallen nearly 25% from those highs.

This is where long-term copper contracts with a wire and cable manufacturer can come into play. A contractor will identify the amount of material required on the job site and the timing of those requirements. They will then work with the wire and cable manufacturers to estimate an average price of copper based on copper futures, material volume, and specific timing of the job or project. Once an agreement is reached, the contractor and manufacturer can agree on firm pricing throughout the project.

Copper COMEX contracts can be procured in 25,000 lbs. increments and will require a non-cancellable or non-returnable PO with releases throughout the term of the contract. Most manufacturers will offer contracts over 12 months but may vary depending on the mix of products and the manufacturer. Using copper contracts offers consistent pricing for the duration of a job or project.

Preparing for a Successful Project

Value-added services can help reduce labor costs, while copper contracts can help reduce risk throughout the length of a project. Construction stakeholders should be proactive in addressing the risks associated with potential price changes during bidding, contract negotiation, and procurement. Communication is the key to a successful project, and discussions regarding price escalation and labor-saving options should begin as early as possible.