Copper and aluminium battle it out for Chinese grid tenders

China’s copper and aluminium industries are battling it out to secure lucrative tenders to wire up the country’s growing cities amid waning demand for the metals.

The rout in commodities has seen copper and aluminium prices drop by about 20 per cent since the beginning of the year on the back of China’s slowdown. Both aluminium and copper are saddled with overcapacity, making any pockets of demand all the more sought after.

Hence the interest in this summer’s publication of national standards for aluminium alloy to be used in cables in local electricity distribution grids. China targets investment of RMB300bn in city power distribution this year alone, and RMB2tn by 2020 to keep pace with rapid urbanisation.

Switching to aluminium alloy for factories and city distribution networks could potentially replace up to 2m tonnes of copper demand annually, or two-thirds of the roughly 3m tonnes of copper currently consumed by copper cable manufacturers, according to the International Copper Association. It would add about 1m tonnes of demand for aluminium, a far cry from the estimated 8m tonnes of surplus aluminium capacity in China today.

Both industries are lobbying heavily. Copper has previously lost out to aluminium, when China’s State Grid adopted the lighter, cheaper aluminium for its long-distance transmission grid. But that shift happened several years ago when the economy was booming, and strong demand for air conditioners, household appliances and electronics buoyed copper prices.

The latest new standards for distribution cables are “good news” for aluminium, “but the degree to which it can help reduce overcapacity is limited, when you compare power with construction businesses and transportation,” said analyst Mo Xinda of the China Nonferrous Metals Industry Association. It is roughly half as expensive to wire up factories with aluminium alloy, making the switch attractive for cost-conscious Chinese manufacturers.

Typically, both industries are appealing to nationalism. Domestic aluminium smelters point out that China is a net importer of refined copper so substitution can help bolster Chinese industry and reduce imports. The copper industry counters that investments by Chinese miners overseas mean that globally, Chinese corporations control more reserves of copper ore than of bauxite, the raw material for aluminium.