global substitution indicators - copperalliance.org · • in 2018, substitution remained...

Copyright © DMM Advisory Group

Global Substitution Indicators

Krisztina Kalman-Schueler


Legal Statement and Disclaimer

The purpose of the information in this presentation is to guide ICA programs and provide members with information to make independent business decisions.

• The information contained in this presentation has been prepared using information available to DMM Advisory Ltd. at the time of preparation and through carefully selected external information sources, but makes no warranty as to the accuracy of the information from these sources.

• Any forward looking statements in this presentation have been prepared on the basis of a number of assumptions, which may prove to be incorrect in the future. Forward looking statements, by nature, involve risk and uncertainty, and DMM Advisory Ltd. specifically warns against business decisions solely relied upon recommendation or forecasts DMM Advisory Ltd. presents in this document.

• The purpose of this presentation is to provide an educated view on likely future scenarios, which need to be further explored by the users of the information provided.


Antitrust Guidelines

The following guidelines with respect to compliance with antitrust laws of the United States, Japan and European Community1 are intended to govern the conduct of participants in copper industry trade association meetings, both at the meeting itself and in informal discussions before or after the formal meeting.

Price: Competitors should not discuss future prices (including terms of sale) of their products. There is no blanket prohibition against the mention of or reference to current or past prices but limits must be observed. Such references or mentions should occur only when necessary in connection with the development of association programs. For example, reference to a particular price level in comparing the cost of a copper product to a competing product is permitted. Whenever possible, such references should be discussed in advance with legal counsel.

Competitive Information: Competitors should not discuss the market share of a particular copper producer or copper fabricator’s products. Furthermore, nothing should be said at a meeting which could be interpreted as suggesting prearranged market shares for such products or producer production levels. The overall market share of copper products may be discussed with regard to competition with non-copper products and general market acceptance.

New Products: Competitors should not encourage or discourage the introduction of a new product by another competitor or reveal a particular copper company’s plans to change the production rate of an existing product or to introduce a new product. No company should disclose to another company whether it is in a position to make or market a new product. New products may be discussed in a technical manner or from the standpoints of competition with non-copper products and general market acceptance. In addition, proposed methods for and results of field and laboratory testing can be considered.

The Role of Legal Counsel: Legal counsel attends association meetings to advise association staff and other meeting attendees regarding the antitrust laws and to see that none of the matters discussed or materials distributed raise even the appearance of antitrust improprieties. During the course of a meeting, if counsel believes that the discussion is turning to a sensitive or inappropriate subject, counsel will express that belief and request that the attendees return the discussion to a less sensitive area.

A paper entitled ‘Copper Industry Trade Associations and Antritrust Laws’ is available upon request.

10/92, 5/93, 10/10

1. Other foreign competition laws apply to International Copper Association, Ltd. (ICA)’s activities worldwide.


Summary

• In 2018, substitution remained relatively low.

• As an aggregated impact of substitution loss and gain, net substitution has increased by 7.6%, but stayed relatively stable at 0.8% of the copper use in 2018.

• ‘Loss’ to miniaturization has declined by 16.9% and the total loss (substitution and miniaturization) stands at 1.2% of the copper use in 2018.

• Over the next five years, a very gradual increase of substitution and miniaturization is expected.

• In the current cost environment, substitution is stronger where alternative materials offer performance advantages and lower price, and where the material costs are a larger % share of the total costs.

• Key factors impacting substitution are relative material costs, copper price volatility, relative material weight, regulations/standards and new technologies.

• Energy efficiency standards have a strong positive impact on the preference for copper in electrical applications where aluminum generally underperforms.

• Building, electric and fire standards also continue to favour the use of copper in wiring.

• Miniaturization is ongoing, mainly driven by redesign cycles and new technologies. However, copper based miniaturization solutions generally offer a strong defence against substitution.

• China, the largest copper use region, has a preference for copper in electrical applications as it focuses on trusted materials delivering quality.

• Electrification, higher energy efficiency requirements and e-mobility hold large growth opportunities for copper over the next few years.


Examples of Companies Interviewed

Fabricators: 29 OEMs: 14 End users, trade

associations, experts: 19


Core Measures of Substitution and Miniaturization

Copper use - Substitution Loss + Substitution Gain = Net Substitution Net Substitution as a % of Copper Use Net Substitution - Loss to Miniaturization

= Total Loss Total Loss as a % of Copper Use.

Copper Use 2018 is the copper volume used in an application in 2018.

Potential copper use lost in the application as copper was substituted by competing materials e.g. aluminum, plastics.

Explanation

Based on certain factors, such as regulation, copper gained market share and copper use against competing materials.

The sum of the Substitution Loss and Gain is Net Substitution in 2018.

Products are becoming smaller and more efficient, reducing the volume of copper used. Copper is still used in the application.

The sum of the Net Substitution and the Loss to Miniaturization is the Total Loss in 2018.


In 2018, Substitution and miniaturization Loss Remained Low at 1.2% of Global Use

-11

1

-12

3

-12

6

-12

7

-13

0

-12

7

-12

0

-11

2

-12

1

-10

1

32 34 32 32 29 48 77 84 86

48

-48

5 -3

99

-48

2

-42

0

-39

8

-38

5

-37

1

-33

0

-31

1

-29

0

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

-700

-600

-500

-400

-300

-200

-100

0

100

200

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Substitution Loss, Gain and Loss to Miniaturization - in kt and % of Copper Use in 2018

Substitution loss and miniaturization have declined in 2018 mainly due to the stable relative costs, as at this level OEMs and manufacturers are not motivated to increase substitution.

Interview quotes: “There is not enough motivation to change copper to aluminum at these prices, however, more cost pressure will (likely) change the view.”

”Miniaturization is mainly technology-driven and difficult to prevent.”

Net Substitution Change 2017-18: +7.6%

Change 2017-18: -16.9%

Status 2018: 0.8% of Copper Use

Loss to Miniaturization

Substitution Loss

Substitution Gain

Net Substitution as % of Copper Use

Total Loss (Substitution and Miniaturization) as % of Copper Use

Status 2018: 1.2% of Copper Use

-3.00%

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.0 0%

0

10

20

30

40

50

60

70

80

90

100

200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6 201 7 201 8

0.8%

1.2%


-140

-120

-100

-80

-60

-40

-20

0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

8

Low Voltage Energy Cables

Cu Alloy PSSF

RBS, Bare Wires

Copper Tube

Winding Wires

Power Cables

Other Products

Telecom Data Cables

Total Loss (Substitution and Miniaturization) by Copper Products 2009–2018 in kt

Total Loss has Declined for Many Copper Products

Copyright © DMM Advisory Group 9

32 34 32 32 29 48 77

84 86

48

-11

1

-12

3

-12

6

-12

7

-13

0

-12

7

-12

0

-11

2

-12

1

-10

1

-48

5

-39

9

-48

2

-42

0

-39

8

-38

5

-37

1

-33

0

-31

1

-29

0

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

-700

-600

-500

-400

-300

-200

-100

0

100

200

Substitution Loss, Gain and the Loss to Miniaturization 2018 in kt and % of Copper Use

Interview Quote: “Energy transition holds huge opportunities for copper but may also lead to an increase in substitution and miniaturization.”

* Forecast


Substitution Loss

Substitution Gain



• Electrification and e-mobility will increase demand for electrical applications, driving copper prices higher and possibly increasing substitution.

• New technologies will continue miniaturization.

Substitution Expected to Stabilize Before Gradually Increasing


Copper Tubes

Low Voltage Energy cables

RBS, Bare Wire Cu/Alloy PSSFs

Copper Tube

Winding Wire

Power Cables

Alloy and Other Products

Telecom Data Cables

Distribution of Net Material Substitution by Copper Products 2018 (% of Total)

26%

17%

Net Material Substitution by products 2017–2018 in kt

Te

leco

m

Dat

a c

able

s

15%

14%

10%

8%

7% 2% -66.9 -62.3

-33.6 -42.0

-25.5 -35.5

-22.1

-35.0 -29.1

-25.0 -19.8

-19.8 -18.5

-18.0 -10.0

-4.8

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

2017 2018

Total: 225kt Total: 242kt

Total: 242kt

Substitution Share


23% 2%

9%

16%

15% 2%

14%

7%

22%

14%

26%

14%

12%

17% 18%

10%

10% 31%

7%

8%

5% 4%

14%

0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Copper Use Net Substitution LossLoss to

Miniaturisation

Telecom / Data Cable

Bare Cu Wire & RBS

Copper Tube

Winding Wire

Other Alloys and Products

Cu / Alloy PSSF

Power Cable

Low Voltage Energy Cable

Comparison of Copper Use, Net Substitution and Loss to Miniaturization by Copper Products in 2018 (% of Total)

Interview Quote: “Miniaturization is a good remedy against substitution. Copper is the better material for many applications and if new copper-based technologies allow miniaturization, there is no strong need for substitution.”

Total: 242kt Total: 28,920kt* Total: 101kt

* Forecast

Substitution and Miniaturization Occur Across the Market


Distribution of Substitution Loss, Gain and Loss to Miniaturization to Geographic Regions 2018 (in kt and % of Total)

Regions with strong cost pressure will have higher % Net Substitution on Copper Use.


Substitution Loss

Substitution Gain



China’s Net Substitution as % of Copper Use is at 0.6%. This is lower than in other regions.

-47 -15 -13 -8 -10 -4 -4

-108

-46 -37 -38 -24

-19 -17

20 6 10

3 5 2 2

-0.6%

-1.0% -0.7%

-1.3%

-0.8%

-1.3%

-1.1%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

-165

-145

-125

-105

-85

-65

-45

-25

-5

15

China OtherAsia/Australia

EuropeanUnion

NorthAmerica

North-EastAsia

Other Europe/ FSU / Africa

Latin America

-1.0%

-1.4%

-1.1% -1.3% -1.3%

-1.6% -1.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0 %

China Contributes Most to Substitution and Miniaturization in Absolute Terms but Least as a % of Use


China Substitution Loss, Gain and Loss to Miniaturization 2014–2018 (in kt and % of Copper Use)


Substitution Loss

Substitution Gain


Regional Substitution Factors in China

• China’s approach to substitution is not only dominated by drivers usual in other regions. Factors such as social responsibility and long investment horizon play a key role in substitution decisions, especially for state-owned utilities.

• Tradition strongly impacts material decisions in China ,with a high threshold for substituting copper, the trusted and proven material.

• The relatively tight structure of urban areas in China also creates a preference for copper in electric wiring and cabling.

• In the Chinese A/C market, the widely used dual heating and cooling units restrict substitution of copper HEX tubes.

• Expected cost pressure in the coming years will reduce Chinese manufacturers’ and OEMs’ preference for copper. At the same time, tradition, quality requirements and a focus on reducing failure risks will restrict copper substitution in China.

-54 -52 -50 -55 -47

-148 -145

-131 -120

-108

21 32 34 39

20

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

-250

-200

-150

-100

-50

0

50

2014 2015 2016 2017 2018

China’s Preference for Copper is Driven by Focus on Quality and Tradition


Net Substitution by Materials as % of Total Substitution

25

%

37

%

33

%

39

%

51

%

55

%

52

%

58

%

58

%

57

%

57

%

57

%

54

%

53

%

18

%

18

%

21

%

20

%

15

%

16

%

18

%

16

%

18

%

20

%

22

%

21

%

22

%

20

%

32

%

27

%

26

%

21

%

15

%

15

%

16

%

14

%

13

%

14

%

14

%

13

%

14

%

12

%

25

%

17

%

20

%

20

%

18

%

15

%

14

%

11

%

10

%

8%

8%

9%

9%

14

%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Aluminium Various other Plastics Optic fibre/WiFi

Interview Quotes: “Copper is better than aluminum for electric and thermal conductivity, but aluminum-based technologies are (attempting) to close the performance gap.”

“New materials bring new improved technologies.”

Total: 242kt

Material Alternatives

um


Main drivers or constraining factors of substitution and miniaturization:

• Building wires: building regulations.

• Automotive Wires: fuel efficiency and the related relative weight, footprint and flexibility of the material.

• Power Cables: relative costs, electric conductivity and cost pressure from utilities.

• Telecom/Data Cables: technology change.

• Winding wires: relative costs, energy efficiency regulations, new electric motor types, strength, flexibility of the material.

Interview Quotes: “Fuel efficiency objectives put extreme pressure on automotive manufacturers to reduce weight. Reducing weight is sometimes even more important than saving costs.”

“If technology improvements bring material reduction and improved performance, there is no need to substitute copper with aluminum.”

Very important Important Relevant Applicable Not relevant

Relative

material

costs

Relative

weight

Relative

Footprint

Relative

Material

Flexibility

Relative

Material

Strenght

Relative

Conductivit

y

Technology

/Connectiv

ity with

Other

Systems

Regulatory

pressure

Pressure

from

OEMs/end

users

Low Voltage Energy Cable

Building Wire

Automotive Wire

Equipment Wire

Power Cable

Industrial Power Cable

Utility Power Cable

Telecom / Data Cable

External Telecom Cable

Internal Telecom/Data Cable

Winding Wire

Electric Motors

Transformers

Other Winding Wire

Factors influencing material decisisons

Color code:

Factors and Influences 1


Main drivers or inhibitors of substitution and miniaturization

• RBS/Bare Wire: relative costs, connecting technology in busbars

• Cu/Alloy PSSF: Relative conductivity, flexibility and strength of the materials

• Plumbing Tube: technology change to PEX (plastics). Relative costs and pressure from construction companies/plumbers

• Industrial Copper Tube: relative costs, weight, footprint, aluminum microchannel technology

• Alloys and Other Products: relative costs, safety and health regulations and strength of the material

Relative

material

costs

Relative

weight

Relative

Footprint

Relative

Material

Flexibility

Relative

Material

Strenght

Relative

Conductivit

y

Technology

/Connectiv

ity with

Other

Systems

Regulatory

pressure

Pressure

from

OEMs/end

users

Bare Cu Wire & RBS

Copper Rods Bars and Sections

Bare Wire

Cu / Alloy Plate, Sheet, Strips and Foil

Electrical / Electronic PSSF

Other PSSF

Copper Tube

Plumbing Tube

Industrial Tube

Other Products

Alloy RBS

Alloy Tube

Alloy Wire

Foundry Products

Other Non Mill Products

Factors influencing material decisisons

Interview Quotes: “Efficiency, functionality and price have been the key considerations for material selection for a Chinese motor producer.”

Very important Important Relevant Applicable Not relevantColor code:

Factors and Influences 2


0

50

100

150

200

250

300

350

400

450

500

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Jul-

12

Dec

-12

May

-13

Oct

-13

Mar

-14

Au

g-1

4

Jan

-15

Jun

-15

No

v-1

5

Ap

r-1

6

Sep

-16

Feb

-17

Jul-

17

Dec

-17

May

-18

Oct

-18

Price RatioCopper-Aluminium

Price RatioCopper -Stainless SteelSS304

NetSubstitution inkt

17

Price Ratios (Cu-Al, Cu-SS304) and Net Substitution in kt

Cu-Al price ratio stabilizes at high level with annual substitution declining

Widening Cu-Al price ratio triggering substitution

Softening Cu-Al price ratio

Cu-Al price ratio stabilizes at lower level with annual substitution stable

Strong correlation coefficient copper / aluminum price ratio and Net Substitution 2010–18: +0.8

Correlation With the Copper-Aluminum Price Ratio


Importance of Pressure from Regulations in the Material Decision (1: Not Relevant, 2: Applicable, 3:

Relevant, 4: Important, 5: Very Important)

Environmental Regulations as a Substitution Driver

• Energy efficiency standards have strong impact on the material decision in winding wire and other electric applications.

• Fuel efficiency objectives are key to all automotive parts including automotive wiring, alloy wiring and other alloy products.

• Electric mobility regulations will have a significant impact on copper use, but the impact is not yet felt other than utilities install larger capacities for an expected increase in load.

• REACH restricts the use of lead-containing brass and may have an impact on the use of plastics with food or water contact in future.

• End-of-life recycling/disposal regulations impact the construction of the units but do not seem to impact copper substitution.

• Green city/ green home concepts impact copper use and miniaturization as opposed to substitution.

Non-Environmental Regulations as Substitution Drivers

• Building, electric and fire standards constrain copper substitution and it is expected that these standards will become stricter over the next five years. N

et S

ub

stit

uti

on

as

a %

of

Co

pp

er U

se 2

01

8

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1 2 3 4 5

The importance of regulatory pressure as a substitution driver varies across copper products independently from the extent of Net Substitution Interview Quote: “We don’t have any latent substitution plans ready for

when the copper price will increase. However, it is always possible to substitute.”

Energy Efficiency Standards and Fuel Efficiency Objectives are Currently the Key Environmental Regulations Impacting Substitution


Copper Use in 2018

-4.5%

-4.0%

-3.5%

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

-4% -2% 0% 2% 4% 6% 8%

Expected Future Annual Growth of Copper Use (CAGR 2018–23) in % Su

bst

itu

tio

n L

oss

as

a %

of

Co

pp

er U

se in

20

18

Auto. Wire

Telecom & Data Cables

Plumbing Tube

Winding W. in Transformers

Power Cables

E&E PSSF

RBS, Bare Wire

Alloy RBS

Building Wire

Other PSSF

E. Motors

Active development

Foundry

Ind. Tube

Alloy Wire

Adverse Growth

High expected future growth of copper use and relatively low substitution in 2018

Moderate Growth Strong Growth

Lower substitution

in 2018

Higher substitution

in 2018

The Majority of Copper Products Experienced Low Substitution in 2018 and Expect a Moderate to Strong Future Growth of Copper Use

global substitution indicators - copperalliance.org · • in 2018, substitution remained...

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