China’s State Grid Corporation, the world’s largest consumer of copper, is making strategic shifts in its purchasing patterns that are prompting speculation across the metals industry. Amidst fluctuating copper prices, State Grid has notably curtailed its acquisitions of copper wire this year while simultaneously increasing purchases of aluminum wire, seen as a more cost-effective alternative. This maneuver, interpreted by some as a response to soaring copper prices, has sparked debates about potential broader policy changes within one of the industry’s most influential yet opaque entities.
The implications of a large-scale substitution of copper in China’s extensive power networks could significantly impact global copper demand. This development has led some traders to wager against prevailing expectations of copper shortages and rising prices in the years ahead. China, which accounts for more than a quarter of global copper consumption primarily in electrical cable production, stands at the center of this unfolding narrative.
Despite the attention this shift has garnered, experts caution against overstating its significance. Minor substitutions away from high-cost copper have long been observed during periods of price volatility. Analysts such as Chenfei Wang from CRU Group in Shanghai emphasize that while the topic gains traction during copper price rallies, substantial policy shifts by the state grid have historically been slow to materialize.
Traditionally, copper has been favored for its superior conductivity in electrical applications, though aluminum, being lighter and cheaper, has served as a longstanding substitute. The differences in conductivity necessitate larger aluminum cables to carry equivalent electrical loads compared to copper, a factor influencing usage decisions in different contexts such as overhead power lines versus urban underground cabling.
Globally, the trend of substituting copper with aluminum has marginally reduced copper consumption by approximately 1 to 1.5% annually over the past decade, as reported by the International Copper Association. Despite current global market adequacy largely due to subdued Chinese purchases, forecasts of future copper deficits persist, potentially driving prices upwards.
In China, where specific wiring and power generation applications legally mandate copper use, any potential policy deviation by State Grid is closely monitored. Yet, due to State Grid’s procurement practices, which often lack transparency regarding the choice between aluminum and copper, discerning market reactions becomes challenging.
Recent market indicators suggest a slowdown in State Grid’s copper cable procurements amid record-high copper prices driven by bullish investor activity. Reports from major suppliers indicate a notable decline in copper cable sales to State Grid, reflecting the ongoing market dynamics.
Conversely, aluminum cable sales have surged, with State Grid’s procurement volumes rising sharply in recent months. The potential for increased substitution of copper with aluminum is being actively discussed, underscoring aluminum’s advantageous characteristics and China’s substantial domestic aluminum resources.
Despite these developments, skepticism remains prevalent among industry leaders like Italy’s Prysmian SpA, a leading cable manufacturer. They highlight that unless faced with actual metal shortages, widespread global adoption of aluminum over copper remains uncertain, particularly in critical sectors such as renewable energy projects and data centers, where copper’s efficiency and reliability are preferred.
Nevertheless, the recent market adjustments, including various forms of “thrifting” such as aluminum substitution, have already reduced copper demand by significant metrics, according to Citigroup analysts. They warn that a potential policy shift towards extensive aluminum substitution poses a credible risk to capping future copper price increases.
As discussions intensify within the industry, the outlook hinges on whether China’s State Grid will sustain its current trajectory towards aluminum substitution or revert to traditional copper use, influencing global copper markets in the process.
