Cable Manufacturers Mitigate Raw Material Fluctuations with Variable Pricing

Indian Wire and Cable Industry has witnessed a roller coaster ride in terms of raw material costs. The Wire and Cable industry saw a steep rise in prices of major raw materials since resumption of economic activities after the first Covid lockdown in India which began on 22^nd March 2020.

Still the prices are fluctuating on higher side owing to growing demand from manufacturing sector.

Let’s have a brief look at how the prices of major raw materials like Copper, Aluminium, Steel, Polymer compounds etc. changed since March 2020 and how the Indian Wire and Cable manufacturers have handled it.

Raw material Prices Progression Post First Lockdown

All the cable raw materials have experienced a steep rise after major countries started reopening their economies post Covid pandemic’s 1st lockdown around July / August 2020.

Copper rates have seen an increasing trend since the dip seen during the pandemic shutdown in March 2020. Copper trading at USD 4617.50 / MT on 19^th March 2020 on London Metal Exchange (LME). Since then Copper prices have continuously showed upward momentum with day prices reaching USD 10,724  per tonne on 10^th May 2021 (Cash buyer). Since then Copper prices have been fluctuating in the range of USD 9K-10.5K per MT till 30^th July 2021.

This continuous rise in Copper prices after the 1st wave of Covid was attributed to rising Chinese manufacturing demand and stimulus package announcement by many countries like U.S.A and Japan to support manufacturing.

Simillarly, LME Aluminium prices saw lows at USD 1,421.50 on 8^th April 2020 (Cash buyer). Since mid-April 2021 Aluminium has been trading roughly between USD 2,300- USD 2,600 per tonne until 30^th July 2021.

On 12^th May 2021 LME Steel Rebar price was USD 794 per tonne (1 month contract). This was again around 90% price rise from the 30^th March 2020 price of USD 416 per tonne.

Price of PVC ST-1 was around INR 70,000 per tonne in last week of March 2020. With multiple fluctuations since then, price of PVC ST-1 on 25^th June 2021 reached around INR 1,07,000 per tonne and dropped down to INR 94,000 per tonne on 24^th July 2021. Similarly, PVC TYPE-A prices have also jumped more than 50% since last week of March 2020 when prices were about INR 80,000 per tonne and is now trading at about INR 1,10,000 per tonne on 24^th July 2021.

How Indian Cable Manufacturers have Tackled Raw material Price Change?

Wire and Cable manufacturers in India initially experienced difficulty due to sudden price rise and and post lockdown cash crunch. To tackle this situation cable makers started procuring on basis of monthly averages for major raw material like Copper and Aluminium.

For order booking cable suppliers are pressing buyers to work on variable pricing method. Since most of the site contracts / EPC contracts are based on older (and much lower) raw material rates, many buyers prefer variable pricing as that gives them some window to place orders at lower than peak-material prices. Also, price validity given is not more than 3-4 days, earlier which used to be around 2-3 weeks.

Now although raw material prices are not rising as before, but still to mitigate the huge fluctuations, cable manufacturers are working on variable pricing and short price validity.

Insight on Raw Material Pricing by Indian Cable Sector Pioneers

Expressing views on fluctuating raw material prices in an interaction with CableCommunity.com Mr. Naveen Sawhney, Chairman & MD, Cords Cable Industries Ltd. said “To counter this effect (fluctuation in raw material prices) we are working on monthly average price basis. Also, at any given point of time we don’t take more than 3-5 months of order booking. Out of these 3-5 months, a good measure is on variable prices and rest is on firm prices. This way we are protected against Copper price rise to a large extent, but  Steel and PVC price rise has affected us also. In my understanding by and large the whole Cable industry is affected by this raw material price hike and fluctuations”.

CableCommunity.com also took views of Mr. Vinay Rathi, Executive Director, Gloster Cables Limited on the raw material price fluctuation, who said “Raw material prices have gone up 30-35%, so in long term this has to stabilize somewhere otherwise it would be very difficult to do business. Therefore, some sort of stability is required then only industry can grow”.

The silver lining for Indian Cable industry has been that orders have started gradually increasing since the first month of 2021 as many of the projects put on hold due to the pandemic have restarted. Also, pending development projects are being launched. Major Wire and Cable manufacturing companies have also posted somewhat satisfactory Q4 2021 results.