Alcan returns to profit on surging wire demand
Aluminum product making gains as copper substitute
ANDY HOFFMAN
theglobeandmail.com
MINING REPORTER
It's not likely to be carrying electricity through your house any time soon, but aluminum wire is making gains as a substitute for copper, according to Alcan Inc., helping the company return to profit in the fourth quarter.
Despite a recent pullback, copper prices have more than tripled in the past four years, and cheaper aluminum cable and wire is winning favour for use in industrial building applications.
Aluminum wire now makes up roughly 40 per cent of the so-called "building wire" market. Building wires are the power lines that run from transformers to houses and industrial facilities.
As regulations changed, which allowed the use of aluminum for building wire, switching from more expensive copper wire has slowly increased over the past two decades. But in the past year, when the price of copper climbed to more than $3.50 (U.S.) a pound at one point, the level of demand for aluminum wire surged.
"We're seeing an accelerated switch [to aluminum] and it has also allowed us to raise prices significantly and still be well under copper," Alcan's president and chief executive officer Dick Evans said in an interview yesterday, following the release of the company's fourth-quarter and year-end financial results.
The price increases helped operating profit at Montreal-based Alcan's engineered products division more than double to $168-million in the fourth quarter from $81-million in the year-ago period. Sales from the wire and cable business are worth more than $600-million a year.
"The spread between aluminum prices and copper prices is as wide as it's ever been. There is substitution going on," said Lawrence Smith, an analyst at Blackmont Capital.
Mr. Evans said Alcan doesn't expect demand for aluminum wire in North America to slow. The company also hopes China, where a building boom is under way, will become a big customer.
"We are starting to see a lot of interest in China. If China were to switch, it would be a big shot in the arm for aluminum because their consumption is quite high," Mr. Evans said
Aluminum wire is not as conductive as copper but it is much lighter. To achieve the same conductivity as copper, thicker aluminum wire must be used. Overhead transmission lines are already constructed exclusively with aluminum. "The reason is weight. If you built them out of copper, you'd need super-sized pylons to hold them up," Mr. Evans said.
When copper prices rose in the mid-1960s, aluminum wire was manufactured at a gauge small enough to be used in homes. Regulations in some areas allowed its use, but aluminum wiring was blamed for a number of house fires that were likely caused by faulty connections. These days, Alcan says it's not trying to convince home owners to make the switch.
"My view is that's unlikely to happen soon because you'd have to change the regulations and you do have that history; even though the cause was using the wrong connectors, nobody wants to take that risk," Mr. Evans said.
Alcan
Q4 2006 2005
Profit (Loss) $422-million ($361-million)
EPS $1.13 (98¢)
Revenue $6.2-billion $5-billion
FIGURES IN U.S. DOLLARS
SOURCE: COMPANY REPORTS |
