Copper Substitution Seen by KME Accelerating on Slow Growth

Copper is being replaced by cheaper substitutes at a faster pace as slowing economic growth prompts manufacturers and builders to save money, according to Riccardo Garre, chief executive officer of KME Group SpA, a Florence, Italy-based maker of parts used in cars, fridges and roofs.

Copper substitution including by aluminum, plastics and fiber optics reduced demand by 400,000 to 500,000 metric tons last year, equal to about 2 percent of global usage, according to Wood Mackenzie Ltd., an Edinburgh-based researcher. Global economies grew 3.2 percent last year compared with 3.9 percent in 2011, the International Monetary Fund estimated in January.

“Copper and products for the building industry are enormously impacted by the slowdown of the economy,” Garre said in a telephone interview yesterday. “That, in my opinion, is accelerating the substitution. Especially for roofing products and plumbing tubes, we see that on top of the slowdown.”

Copper usage fell 7.5 percent in Europe in the 11 months through November last year as global demand grew by about 3.5 percent, according to the International Copper Study Group in Lisbon. About 85 percent to 90 percent of KME’s sales are in Europe, according to Garre.

Copper gained 4.4 percent last year on the London Metal Exchange. The metal for three-month delivery rose 0.5 percent to $7,761.25 ton by 1:01 p.m. in London, down 2.1 percent this year.

Copper Output

KME has 12 production locations in Europe and one in China, according to its website. Production of copper and copper alloy products this year will be unchanged at about 435,000 tons after output slumped 10 percent last year, Garre said.

“To assume that in 2013 the volume will be exactly the same as in 2012, it means it’s really a negative vision,” Garre said. “It will be the first time in copper that following the crisis, the volumes stayed the same. It never happened during the last decade in copper.”

KME, which has roots going back to 1886, makes products including tubes, rods, bars and sections. Demand so far this year has been comparable to the last quarter 2012, and stronger for rolled products used in automotive, electronics and electrical applications, Garre said.

“It is too early to say if it will continue or not but so far this segment is the most promising compared with the other products,” Garre said. “This is probably related to the restocking effect.”

KME hasn’t had problems securing copper scrap to make its products, Garre said. There is a risk of a shortage if Chinese buyers come back to the European market, he said.

KME is “monitoring” changes in delivery rules at warehouses monitored by the LME, he said.

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