Buildouts Beware: Copper Market Up Sharply

Terminal blocks for joining aluminium and copp...

 

Pipes and electrical wires, it goes without saying, are a huge part of what makes commercial properties commercial.  The beefed-up electrical and plumbing requirements of commercial space make up the least flexible costs of any buildout.

 

Which means that the price of copper speaks loudly to the bottom line of both the developer and the landlord negotiating tenant improvement allowances. Water and electricity has to flow; and on average, the technology requirements of the average office or retail tenant are higher than ten years ago.  So when copper prices rise, commercial space buildout budgets absolutely must get another look.

 

Copper prices are on the move, which means wiring and conduit prices must follow.  Futures in copper hit their top value in 21 days Wednesday, and numerous sources see a heightened cost for the metal in the coming year. What’s behind the surge in copper?

 

Strong Chinese Demand, Uncertain World Supply

 

Following a rare October 2012 drop in demand, Chinese manufacturing has resumed driving a massive import market for the reddish metal.  Recent announcements of massive infrastructure projects totaling $156 billion in the copper-poor Asian nation have driven analysts to notice this demand is against a backdrop of questionable world supply.

 

Some analysts are not so optimistic regarding new mine production and point to serious supply considerations. Scotiabank noted that mine delays in Peru and Chile, which account for more than 40% of the world’s copper supply, are expected to lend support to copper prices in 2013. Tom Meyer with Scotiabank estimates that about $57 billion in mine investments have been delayed or shelved in Chile and Peru. At least 15 mining projects in Peru alone have been delayed because of social unrest. Combined with expanding Chinese urbanization and infrastructure building, near-term supply constraints could send copper to $4.29 per pound in 2013 and $4.80 in 2014, Meyer claimed.

Speculation In Physical Copper Now Legal Again

Something else is probably driving your project’s rising conduit costs: Wall Street.

Somehow, the right to financialize everything under the sun keeps winning out, no matter how much evidence we have or how much we learn about the damage wrought by allowing speculation in every nook and cranny of the economy.  No matter the cost, Wall Street must have what it wants: and according to The New Republic’s Lina Kahn, copper is back on its dinner table.

In 1996, the world learned a Japanese firm had cornered the copper market. The company, Sumitomo, was fined $125 million for squeezing copper supplies and artificially inflating prices–at that point the largest penalty ever levied by a U.S. government agency. The Commodities Futures Trading Commission called the scheme “one of the most serious worldwide manipulations” of a commodity in decades. Last Monday, the Securities and Exchange Commission posted a decision that could effectively lead to a repeat of the Sumitomo corner, with one key difference: hoarding copper will now be legal. 

Until now, the main people buying physical copper have been the people who use it, like manufacturers that produce basic industrial goods such as pipes and electrical wires. Speculators have been limited to trading in futures, which are forms of bets that link only indirectly with physical supply of copper. Two weeks ago, however, the SEC blessed a controversial fund designed by J.P. Morgan Chase that, for the first time, will let investors buy shares backed by physical, warehoused copper, to use as a form of investment.  

Pitting manufacturers – practitioners –  against speculators.  Prices distorting to enrich investment banks. The turning of tangible assets into mere gambling chips. And the very likely scenario of the rest of us left holding the bag in the form of busted budgets, delayed projects and stalled growth.

Gosh, does any of this sound familiar?

03. January 2013 by Wayne Grohl
Categories: Construction, Development, Financial Analysis | Tags: , , , | 2 comments

Comments (2)

  1. The percentage of tenants renewing and restructuring existing leases has gone up dramatically . Build out cost and poor planning are two major causes. Starting early 12-14 months before lease expiration is key!

  2. This information should go to Residential members who work with foreclosures as well. If it happens, then vacant properties may begin to be raided for their plumbing and wiring. It has happened to me.

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