Analysis of the Impact of Rising Naphtha and Copper Prices on the Cable Market and its Supply and Demand Structure
The current cable market is in a highly distinctive phase, characterized by the simultaneous rise in naphtha and copper prices. These are key raw materials for sheathing and conductor materials, respectively, and price fluctuations in both directly and comprehensively impact the cost structure of cable products. This paper analyzes cable prices and demand trends, taking into account the structural background of these raw materials.
First, let's consider copper. Copper has excellent electrical conductivity and processability, making it an indispensable material for electric wire conductors. In recent years, its use has increased in areas such as electrification (EVs), renewable energy, and the expansion of data centers, resulting in a structurally increasing demand. On the other hand, developing copper mines takes a long time, making short-term supply increases difficult. Therefore, supply cannot keep up with increasing demand, and prices are likely to rise in the medium to long term. Since copper benchmark prices are determined by these international market conditions and exchange rates, domestic prices are similarly susceptible to upward pressure.
Next, let's consider naphtha. Naphtha is a hydrocarbon mixture obtained during the petroleum refining process and is used as a raw material for basic chemicals such as ethylene. Polyethylene (PE), cross-linked polyethylene (XLPE), and even polyvinyl chloride (PVC) rely partly on naphtha-derived ethylene as their raw material. Furthermore, many of the plasticizers and additives used in PVC compounds are petrochemical products and are therefore affected by naphtha prices. Consequently, rising naphtha prices contribute to increased sheathing costs through resin prices.
As such, cost-increasing pressures are simultaneously acting on both the conductor and the sheathing, the main components of cables, leading to a strong tendency for product prices to rise or remain high. Copper, in particular, accounts for a high proportion of product costs, making it significantly affected by price fluctuations.
On the other hand, when considering demand trends, it's important to note that current order volumes don't necessarily reflect actual demand. When information about supply concerns or price increases spreads to the market, customers tend to order larger quantities than usual in advance to mitigate future procurement risks. As a result, statistical demand temporarily increases, but this is actually inventory buildup rather than consumption.
This accelerated demand will, in the short term, tighten supply and demand, leading to extended delivery times and shortages of some products. However, once supply recovers to a certain extent and inventory becomes apparent, new orders will plummet, and demand will fall sharply. This phenomenon has been repeated in the past and can be explained as a self-amplifying fluctuation in supply and demand.
Therefore, while future cable demand may remain strong in the short term due to increased speculative demand, a scenario where demand slows down in the medium term as inventory adjustments begin is considered reasonable. This is due to a temporal shift in supply and demand, not an expansion of actual demand.
Regarding prices, considering the structural supply constraints of copper and fluctuations in the price of petrochemical raw materials derived from naphtha, a significant decline in the short term is unlikely, and prices are expected to remain in a high range for a certain period. However, in the phase of slowing demand, temporary adjustments may occur due to changes in the supply-demand balance.
As described above, the current market is in a unique state where "cost increases" and "accelerated demand" are occurring simultaneously. In this environment, mistaking a apparent increase in demand for an expansion of actual demand can lead to misjudgments of supply and demand. To accurately grasp market trends, it is crucial to focus on actual consumption trends and inventory levels, rather than order quantities.
As past examples clearly show, supply and demand imbalances always correct themselves over time. Therefore, instead of overreacting to short-term market fluctuations, it is necessary to make judgments based on the structural factors of raw materials and the mechanisms of supply and demand.
First, let's consider copper. Copper has excellent electrical conductivity and processability, making it an indispensable material for electric wire conductors. In recent years, its use has increased in areas such as electrification (EVs), renewable energy, and the expansion of data centers, resulting in a structurally increasing demand. On the other hand, developing copper mines takes a long time, making short-term supply increases difficult. Therefore, supply cannot keep up with increasing demand, and prices are likely to rise in the medium to long term. Since copper benchmark prices are determined by these international market conditions and exchange rates, domestic prices are similarly susceptible to upward pressure.
Next, let's consider naphtha. Naphtha is a hydrocarbon mixture obtained during the petroleum refining process and is used as a raw material for basic chemicals such as ethylene. Polyethylene (PE), cross-linked polyethylene (XLPE), and even polyvinyl chloride (PVC) rely partly on naphtha-derived ethylene as their raw material. Furthermore, many of the plasticizers and additives used in PVC compounds are petrochemical products and are therefore affected by naphtha prices. Consequently, rising naphtha prices contribute to increased sheathing costs through resin prices.
As such, cost-increasing pressures are simultaneously acting on both the conductor and the sheathing, the main components of cables, leading to a strong tendency for product prices to rise or remain high. Copper, in particular, accounts for a high proportion of product costs, making it significantly affected by price fluctuations.
On the other hand, when considering demand trends, it's important to note that current order volumes don't necessarily reflect actual demand. When information about supply concerns or price increases spreads to the market, customers tend to order larger quantities than usual in advance to mitigate future procurement risks. As a result, statistical demand temporarily increases, but this is actually inventory buildup rather than consumption.
This accelerated demand will, in the short term, tighten supply and demand, leading to extended delivery times and shortages of some products. However, once supply recovers to a certain extent and inventory becomes apparent, new orders will plummet, and demand will fall sharply. This phenomenon has been repeated in the past and can be explained as a self-amplifying fluctuation in supply and demand.
Therefore, while future cable demand may remain strong in the short term due to increased speculative demand, a scenario where demand slows down in the medium term as inventory adjustments begin is considered reasonable. This is due to a temporal shift in supply and demand, not an expansion of actual demand.
Regarding prices, considering the structural supply constraints of copper and fluctuations in the price of petrochemical raw materials derived from naphtha, a significant decline in the short term is unlikely, and prices are expected to remain in a high range for a certain period. However, in the phase of slowing demand, temporary adjustments may occur due to changes in the supply-demand balance.
As described above, the current market is in a unique state where "cost increases" and "accelerated demand" are occurring simultaneously. In this environment, mistaking a apparent increase in demand for an expansion of actual demand can lead to misjudgments of supply and demand. To accurately grasp market trends, it is crucial to focus on actual consumption trends and inventory levels, rather than order quantities.
As past examples clearly show, supply and demand imbalances always correct themselves over time. Therefore, instead of overreacting to short-term market fluctuations, it is necessary to make judgments based on the structural factors of raw materials and the mechanisms of supply and demand.
