As copper prices surged to record highs earlier this year, air-conditioning makers, a key buyer in the consumer market, are starting to consider switching to a cheaper alternative: aluminium.
According to many people in the industry, the air conditioning industry, which accounts for a large proportion of global copper demand, has become increasingly intolerable to high copper prices. (Daikin Industries Ltd.) of Daikin Industry, Japan, one of the largest air conditioning manufacturers in the world. It is planning to replace half of its copper in its equipment with aluminum by 2025. At the same time, some Chinese home appliance manufacturers are also studying to increase the use of aluminum as much as possible.
Song Jingxue, head of the research department of the China Home Appliances Industry Information Center, said the rise in commodity prices, especially copper, was increasing cost pressure on air conditioner manufacturers. Due to the low degree of product differentiation, it is difficult for many manufacturers to pass on the increased costs to consumers, so many companies are considering seeing aluminum as a relatively cheaper alternative.
For a long time, air conditioning has been one of the major copper consumers in the field of household appliances. In China, household appliances account for 15% of total copper demand, of which air conditioning is one of the largest. Copper accounts for about 20% and 30% of the production cost of air conditioners, according to the China Home Appliances Research Institute.
Takashi Abe, a spokesman for Daijin, said that since 2013, Daijin has tried to use aluminum on some machines. Given the soaring price of copper, the company plans to accelerate the shift. The company currently uses about 90,000 tons of copper a year and produces more than 10% of the world's air conditioners.
Tobari Takeshi, a spokesman for General (Fujitsu General) of Fujitsu, another Japanese manufacturer, also pointed out that the company is taking steps to use aluminum to produce key components such as heat exchangers, which originally use a lot of copper.
Replace copper with aluminum. Who will replace aluminum?
Copper is usually the first choice for air conditioning manufacturers because of its higher thermal and electrical conductivity. Of course, aluminum is not without advantages, it is significantly lighter and usually cheaper. The biggest obstacle to the adoption of aluminum will be resistance from air-conditioning consumers, who tend to prefer machines made of copper.
Song Jingxue points out that there was similar discussion of alternatives during the boom in copper prices in 2005 and 2011. "traditionally, people tend to think that copper is better than aluminum because expensive materials are generally considered to be of better quality. Given these market obstacles, the replacement plan may still take a long time to complete, "Song Jingxue said."
At present, there is no doubt that copper prices are in the midst of another boom in rising prices. LME copper, which surged to an all-time high of $10747 in May, remains above the $9300 mark, although it has fallen in the past few months. Given the upcoming surge in demand in industries such as electric cars, there is little room for copper prices to fall.
Morgan Stanley said in May that copper prices above $10000 a tonne would accelerate the implementation of alternative measures, with heating, cooling and cable applications most at risk.
However, some air-conditioning manufacturers eager to switch from copper to aluminum may be saddened by the fact that aluminum prices have also been rising crazily recently, even faster than copper. At the beginning of the week, LME aluminum prices rose all the way to $2848, the highest level since 2008, on the back of supply concerns in Guinea. China's energy conservation and emission reduction actions have also had an impact on aluminum smelting, an energy-intensive industry, straining the supply of aluminum.
Perhaps, against the backdrop of rising commodities, air-conditioning manufacturers can now replace copper with aluminum, but what can be used to replace aluminum in the future?
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