The swing toward plastic piping is gathering momentum and the copper plumbing tube market is bracing for further substitution losses, according to analysts.
Substitution losses in the global plumbing tube market last year totaled 10 percent, or about 120,000 tonnes, said Jon Barnes, principal consultant for copper fabricating at CRU International Ltd., London. With the move toward plastic plumbing tube accelerating as the price of copper remains high and home builders look to reduce costs, total substitution losses this year could total another 15 percent, or between 160,000 and 170,000 tonnes.
"Substitution is huge and it's becoming a problem because it's a global phenomenon," Barnes said. "Part of it is being driven by the fact that, laborwise, it's cheaper to install PEX (cross-linked polyethylene) and multi-layered tube than it is copper tube. It's a lot quicker to install and, therefore, takes less man-hours."
PEX tube systems were introduced in the United States during the 1980s, and since then have eaten into the plumbing tube market, which previously had been dominated by copper. According to PEX manufacturers, the flexible system is fast because of the easy handling of the tubing and it requires fewer directional fittings. As most plumbing problems occur at joints, fewer fittings also reduce the chances of leaks and callbacks, saving the installer even more time, proponents say.
But the cost of copper vs. plastic remains the dominant force behind the increasing amount of substitution. "I walked into a DIY (do-it-yourself) shop where you could buy six lengths of copper tube for £80 ($164) or you could buy one tube of polyethylene for £1 ($2.05). So it's £80 vs. £6 ($12.30)," Barnes said. "That's the problem with copper being over $3 a pound. Some people say copper in plumbing tube is only viable if you get down to $1 to $1.50 a pound. We're way off that and are likely to be for some time to come." With copper also experiencing wild price swings, distributors of copper products are shying away from carrying inventory. Three-month copper prices were hovering around $7,700 a tonne in late October, for example, down about 7 percent from the $8,300-a-tonne level reached in early May and again at the beginning of October but still 45 percent higher than this year's low point in early February of around $5,300 a tonne.
"Distributors don't want to take the risk of buying a load of copper on one day only for the price to crash the next (day)," one physical copper trader said. "Inventory control is a major issue for everyone in the supply chain. But if you're able to switch material in order to offset that risk, then I think most people in that position would make that decision."
Increased thefts of copper-based products is another factor deterring distributors, Barnes said. "The high prices make it very attractive to steal. We're in a position where even distributors that tended to favor copper have decided it's not worth the (aggravation) because of thefts. There's only so long they're prepared to put up with it."
Traders and analysts agreed that the strength of non-residential construction continued to offset any substitution losses in the residential segment of the business.
"The strength of the non-residential market has limited the downturn in North American demand this year. Demand for hotels, hospitals and offices has been quite robust," Barnes said. "You also can't use PEX or multi-layered products (in commercial construction projects) because they don't pass multi-story building regulations."
Whether that commercial strength will spark a reversal of the residential construction market's ill fortunes remains to be seen. At least one executive believes the housing decline is approaching bottom, although signs of a turnaround are unlikely to become evident until mid-2008.
"The commercial-industrial sector of the construction industry has been in an upward trend, having grown by 15 percent over the year before," Harvey L. Karp, chairman of Memphis, Tenn.-based Mueller Industries Inc., forecast in October with the release of the company's third-quarter results. "We believe the decline in the housing market is nearing a bottom, and that indicators of a recovery phase will be evident by mid-2008 and then gradually pick up momentum."