Commodity price inflation to impact cost of low-voltage electrical equipment

May 31, 2017: A recovery in Asian demand and supply constraints in the global market has sparked an increase in price of commodities like copper, pushing manufacturers to increase cost of low-voltage electrical equipment. Electrical equipment such as circuit breakers, switching and control and metering products are used extensively in industrial, commercial and residential segments, with a significant chunk used in the power sector.

Manufacturers have been under pressure to increase product cost due to a continued upward pressure on their input and manufacturing costs. Copper prices have been on the boil because of stoppages at the world’s two largest mines — a 43-day long workers’ strike at BHP Billiton’s Escondida mine in Chile and export licensing issues at Freeport-McMoRan’s Grasberg mine in Indonesia, impacting global product levels significantly. Simultaneously, there has been an uptick in demand for the red metal in China due to an ongoing infrastructure push.

Commenting on the price increase, Sunil Misra, Director General, IEEMA, said, “We have been tracking the commodities space closely, given the direct relationship between the capital good industry and raw material prices. Over the last 2-3 quarters there has been a distinct trend of CAGR of important raw material like Copper, Aluminium, Steel etc. as well as the USD exchange rates, which clearly impacts the cost of manufacturing, and businesses need to reflect this change in their strategy as they step into the new quarter.”

According to Shrinivas Chebbi, President – Building Business, Partner Projects& Eco-Buildings Business Unit, Schneider Electric India, “At Schneider Electric we deliver the best value to our customers and it is a relationship of abiding trust which we share with them. The volatile cost of commodities in the international market has made us re-examine the product costs and align them better to keep the value of our products as is”.

According to a report by Citi Research, alongside recovering Chinese demand, supply of copper is projected to move into deficit in 2017 for the first time in six years. After hitting historic highs in February 2011 at over $10,000 a metric ton, copper prices went on a prolonged slide, reaching seven-year lows around $4,330 a ton in January 2015 due to slowing Chinese demand growth and burgeoning supply as producers ramped up output in expectations of the demand growth witnessed from 2006-2011. However, Chinese demand growth slowed. According to the report, the supply deficit will prompt copper prices to move above $6,000 a ton in the second half of 2017, with peaks of close to $7,000 a ton before the end of the year, and above $8,000 a ton before the end of 2020.

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