NEW YORK — Encore Wire Corp. is positioned to meet improving demand in the construction industry, although the company anticipates that it will be a slow recovery, chief financial officer and vice president Frank Bilban told AMM.
"The bad news is that the building wire industry, which is part of the construction industry, is probably still in one of the worst depressions in decades," Bilban said. "The good news, however, is it started about six or seven years ago, so we’ve got (those) years behind us."
January statistics from the U.S. Census Bureau support the argument that the domestic construction recovery has legs. Building permits for private homes increased 1.8 percent to 925,000 in January from 909,000 the previous month, and while housing starts dropped 8.5 percent to 890,000 from 973,000 in December, last month’s housing starts were still 23.6 percent higher than 720,000 starts in January 2012.
"I think we are seeing signs of life—green shoots, if you will—that may indicate that the worst of the winter is behind us," Bilban said.
McKinney, Texas-based Encore is "poised to do quite well in the upcoming cycle," he said, pointing to the company’s new aluminum wire facility in McKinney, which began producing in the fourth quarter.
President and chief executive officer Daniel Jones noted during a conference call with analysts last week that aluminum building wire sales hit 5 percent of the company’s total wire sales in the fourth quarter, and he expects that number to increase over the next two years (amm.com, Feb. 21).
Aluminum sales "certainly could increase," Bilban said, although he declined to offer capacity numbers or production goals as all of the company’s major competitors are private and therefore "get to look completely under our skirt" as Encore is public.
Encore made the decision to branch into aluminum wire after researching its customers’ needs.
Aluminum substitution in wire is an ongoing trend, given the cost difference between copper and aluminum. Copper prices are currently close to $8,000 per tonne compared with less than $3,500 before 2005, whereas aluminum has mostly traded between $1,500 and $2,500 per tonne in the same timeframe.
Bilban is not convinced that the price differential will stay that wide forever, however. "Since 2005, there’s been a big difference. Aluminum and copper prices have a pretty big spread right now," he said. "But I don’t think it will last forever."
Cash copper traded at $7,865 per tonne in the official session on the London Metal Exchange Feb. 25 vs. a cash aluminum price of $2,004 per tonne.