Aluminum Preferred Over Copper for Cables Helps Rusal, Alcoa: Commodities

Copper has climbed to almost four times the price of aluminum, a record ratio that’s accelerating a switch by manufacturers to using the cheaper metal in electric cables and wires, a United Co. Rusal executive said.

Demand for copper is shrinking by about 400,000 tons a year through substitution, or 2 percent of global use, according to Oleg Mukhamedshin, deputy chief executive officer of Rusal, the world’s largest aluminum producer, who cited market data the company uses in its forecasts.

“More than half of this loss is to aluminum,” Mukhamedshin said in an interview in Moscow. “With copper prices at a record, further substitution is expected.”

The shift is helping the silver-colored metal rise this year after its average price slid 7 percent since 2006. That should increase revenue for producers from Rusal to Alcoa Inc (AA)., the largest U.S. producer, in the $100 billion market for the material used in aircraft, building materials and beer cans.

The current aluminum price is below the cost of production for about 30 percent of the world’s producers, according to Rusal’s data. Alcoa, Rio Tinto Group and their global competitors are cutting production after aluminum prices declined almost 30 percent by the middle of December to $1,962 a ton from the peak of $2,797 a ton in May. Alcoa reported its first loss in two years in January, while Rusal said it may cut 6 percent of its output in 18 months.

The price of copper, half of which is used in wiring, has more than doubled since 2005 to $8,300 a ton and is more profitable for its producers, while aluminum has remained at about $2,200 a ton in the period.