Surge in global copper price hurts cable companies

Fluctuating copper and aluminium prices in international markets coupled with reduced business from regional power utility firms is hurting the profit margins of wire and cable firms in Kenya. Local manufacturers hope demand for copper and aluminium from China will wane in the coming months, stabilising prices and enabling their businesses recover lost ground. Amid growing global demand, especially from China, and persistent supply concerns, the benchmark price of copper has risen sharply from $3,748 in March to $6,195 a tonne in September—a 90 per cent increase. The rally follows an almost 50 per cent drop in price in 2008. Local manufacturers of electrical wire and cables have taken a hit to their bottomline as most have been unable to pass the full value of the price increase on to their customers for fear of losing business. “This is significant to our industry because copper is the primary component in cable manufacture and as such, a price increase of this magnitude is bound to eat into a company’s margins. “We have felt this effect as we seek to absorb this rise in our costs and try to maintain a competitive price position in the market” says Mr Joseph Kenyua, commercial manager for Kenwestfal Works Limited, local manufacturers of low and medium voltage energy cables. Demand for copper cables from the local civil construction industry has also dipped, according to Kenwestfal Works Limited—manufacturers of aluminium and copper cables for both local and export markets. The company says demand from the private home construction sector is declining fast in the face of cheap imports from Asia. “The recession in housing and construction markets across the world over the last year encouraged globally competitive cable suppliers to explore previously uninteresting markets like ours. This meant that we faced increased competition from their products. It would be good if the nation and industry could present a united front to such competition” says Mr Kenyua. East African Cables, the only publicly quoted cables manufacturer in Kenya, says depressed sales to Kenya Power and Lighting Company (KPLC), its main consumer of electricity cables, and a decline in aluminium sales to the regional markets, have forced down its pre-tax profit to Sh345 million in the nine months to September from Sh391 million over the same period in the last trading period. Local cable companies are now facing stiff competition from international manufacturers and suppliers in selling to KPLC—the main buyers of electricity conductors across the east African region. Chinese stockpiling This, coupled with slower aluminium sales, saw East African Cables’ turnover dip to Sh2.4 billion down from the Sh2.9 billion posted during a similar period last year. “Turnover and profit after tax declined by 18 per cent and 12 per cent respectively for the group. “The Kenyan operations profits increased by 26 per cent while the Tanzanian operation declined by 45 per cent,” Cables’ CEO Mr George Mwangi. “The decline in turnover is attributable to reduced aluminium sales.” KPLC says its procurement rules allow it to source from suppliers who offer competitive prices. “Our official position is that we advertise for tenders as required by public procurement laws. We strictly follow our technical specifications and financial competitiveness requirements and will acquire from companies that meet these specifications,” says Florence Obura, corporate communications manager at KPLC. Mr Mwangi says East African Cables’ profits had also been eroded by the prevailing global economic slump that had led to fluctuations in the global metal prices at the London Metal Exchange. The firm however recorded positive growth in its copper segment despite a slight interruption to the firm’s copper manufacturing lines. The unstable price of copper at the London Metal Exchange is of particular concern for local cable manufacturers. Nairobi-based Kenwestfal Works Limited says the price of copper rose sharply to $6,500 a tonne from $3,500 a tonne between August and September due to heavy demand from China, adding that this made it difficult for Kenyan firms to procure the metal. Local copper and aluminium cables producers hope that the Chinese stockpiling of copper will fade in the coming months so as to stabilise supplies and force down prices.