World demand for copper forces rad prices up, up, up

HOUSTON--If the gyrating prices of radiators and A/C condensers has purchasing agents scratching their heads, it is no wonder.

The answer lies in the price of copper which has escalated higher and faster during the past three years than at any time in history.

Consider this:   With all metal copper brass radiators averaging 17 pounds, the cost to manufacture one increased about $20.00 just in 2006.

The plastic tank copper core radiators have about eight pounds of copper in them so they increased about $10.00 each.

Contacted at his Rialto, Ca., offices, CSF Import Radiators' general manager Chuck Howlett said, "No one likes to see this magnitude of an increase but that is what has happened."

Howlett said that manufacturers have no recourse but to pass on the increase in rising costs or else see their bottom line take a horrible hit.

How steep has been the increase?

In June, 2003, copper costs $1600 per ton. In March, 2005 the price had climbed to $5,000 per ton. In the earliest part of the year 2006, the price hit an unprecedented $9,800 per ton.

To put this into perspective, copper prices rose 75 cents per pound in all of 2005. In the first six months of 2006, prices increased by 58 percent.

Since January, 2005, the price increase has been 138 percent.

Behind these vast spikes in the price are two driving forces.   The first is that China and India have an insatiable industrial demand for copper.

The second is that a study by Yale researchers concluded that there is not enough copper left to be mined to afford these fast-paced developing nations anywhere near the standard of living already achieved by the developed countries.

  With copper costs going through the roof, manufacturers of automotive after

market products, such as radiators, which rely on the metal are in   reality playing the world commodities market.

In order to meet future demand, they have to stockpile copper and that could be costly.   Subsequently, with so much money tied up in the material side of production, there is an impact on the bottom line.

Howlett admits to following the trends for metal closely.   He now considers it a part of his job.

He also has to take a realistic approach to pricing in today's marketplace as the company resupplies its customers with complete radiators for import vehicles.

That's because today's unit landed will have cost more than the ones his company took in last month.

CSF manufactures their units in several different countries, of which one is India.

That means for CSF as well as other companies which import their products--such as sheet metal form Taiwan--the cost of transportation also is a major factor .

With the increasing costs of fuel, all of this makes for an economic nightmare when dealing with customers.

Among radiator manufacturers serving the crash parts aftermarket, most announced price hikes by early spring.   This was a direct reflection of the rising cost of copper.

While some customers may decide to heed the siren song of the discounters when making their next purchasing decision, Howlett sees that only as a short term problem.

He says, "In the long run, all of the manufacturers have to eventually contend with the same type of costs--whether material or labor. It's truly a global marketplace."

A couple of months ago, there was one company which did not immediately follow suit to reflect higher material costs.

To that Howlett said, "It would be interesting to see their bottom line for this quarter."

Just by coincidence, as this Body Language was going to bed, that company announced its price increases on radiators.

Howlett does not believe there is any way for a manufacturer to dodge this bullet and it is impacting a lot more than just the radiator manufacturers serving the industry.

Companies which produce electrical wiring, audio cable, speaker wires and wiring kits are similarly affected.

And many which had stockpiled copper when the dramatic price increases first were evident in 2005 are now running out of their raw material inventory.

This means they have to begin looking for sources to replenish their stockpile because there is no way that time permits the research and development of any substitute material.

Besides, there is no material which has the conductivity efficiency of copper.

Throughout the manufacturing segment of the automotive aftermarket, manufacturers are gaining a greater level of sophistication when it comes to product development lifecycles and bringing procurement expertise into the process.

The trouble is that for many industries, there are no alternative materials to which they can turn.

Because of changing technology within the actual radiator where designs and material are different there can be some reprieve from the ever-climbing higher prices.

Think how hard the radiator replacement market would be hit if copper-brass were still the primary unit in today's vehicles.

They are not but it still does not make solving the problem of short supply and rising costs in material any easier with which to contend and manage.

Howlett believes that all of this is ushering in a new paradigm where the acceptance of new price levels will become the norm and not the exception.

He says, "We are all impacted.   It's just now we have to work harder to make our customers understand that we are dealing with commodities over which we have little or no control.

"And it's those commodity metals which are going to be driving the prices for our products in not only the near term but for perhaps a long time down the road."

Translated, it means don't expect any bargains when it comes to radiators and A/C condensers.   It's just not in the marketplace.