I really enjoy when our HVAC repair guy comes to pay a visit (not because I enjoy sweltering in 90 degree heat mind you when the AC isn’t working) but when you talk to someone in the trades who really knows their business and who happens to recognize some interesting trends. My first question, “have you seen any copper thefts in Chicago?” His answer did not surprise me, “more than I have ever seen since I have been in this business.” The copper line set is quite valuable and he’s seen more than a few stolen just this season. But then we got onto that exciting topic of plumbing. I asked him if he felt any of the alternative products out there would begin to eat into copper’s market share. And he said, “I have no doubt that PEX will make a huge dent in copper’s market share within the plumbing world.”
According to the PPFA PPFA (Plastic Pipe Fittings Association), PEX is a cross-linked polyethylene. It is used for hot and cold water plumbing systems, refrigerant lines, ice rinks, radiant floors along with a few other applications. It has been in use since the 1960’s in Europe and came to the States in the 80’s. And according to my HVAC repairman, “PEX is going to take off once we are out of this housing slump.” Which begs the question, if the US housing industry did move en masse to a product substitute, what kind of US demand drop-off would one expect? The answer is about 2% of US consumption, according to Table 4 in this link. Not huge for sure, but significant to the industry. But besides this product change, the plumbing industry is using thinner walled, narrower tubes for air conditioning applications, according to this Mineweb article, to reduce copper content. Of course the copper industry is working extremely hard to innovate in other areas as we have previously reported.
But high prices do lead to demand destruction because the prices force companies to innovate and develop alternatives. So what do these product substitutes have to do with long term copper pricing? Well, according to this Kiplinger article, Kiplinger article “high prices will cure high prices by triggering more production by mining companies which will buoy supplies,” though not everyone agrees. Fitch Ratings is calling for copper demand to grow 4% over the next 18-24 months while supply may only grow 3%. That said Fitch believes copper will “remain at historically high levels” though may moderate further. Depending on whom you read, copper will stay high, flatten or come down slightly. Tell us what you think: