10 May With copper pricing skyrocketing, fiber-optics is the way to go
While I have touted using fiber-optics for years because of its high-speed capacity, it now also appears to be the more cost-effective way to go for network infrastructure as the pricing for copper continues to skyrocket, writes adjunct Northwestern professor James Carlini.
Copper is dead. Evidently that mantra, though, is not shared by some analysts on Wall Street. If they really knew the telecom business, they would be questioning the strategy of building more copper-dependent network infrastructure. Basic costs for materials have skyrocketed.
The cost of raw materials has shot up dramatically in the last year and some as recent as the last couple months. This is according to a May 2006 Communications Supply Corporation (CSC) newsletter that focused on the cost of communications cabling:
Copper prices have increased by 92 cents per pound since the beginning of April with price increases sometimes approaching 20 cents per day. To put this in perspective, copper prices increased 75 cents in all of 2005. This equates to a 58 percent increase in copper since January 2006 and a 138 percent increase since January 2005.
For the moment, there is no stopping copper, and looking ahead, there seems to be nothing to derail it. Worldwide copper consumption will exceed production in 2006 by 100,000 tons, according to a BaseMetals.com report. The biggest reason for world copper supply tightness and sky-high prices continues to be China where industrial and urbanization have been under way all decade.
Patricia Mohr, a vice president with Scotia Bank, says recent data suggest that the combined copper stored in Comex, London Metal Exchange (LME) and Shanghai Futures Exchange warehouses is considered to be around a 3.6-day global supply. This figure is near the low end of its recent range of 2.8 days in 2004 and could reach that range once again by year’s end.
Continued strikes and natural disasters across the globe are also contributing to further disruptions to copper output. Output has been lost during a one-month stoppage at the La Caridad mine. Freeport-McMoRan Copper & Gold says that variations in the richness of deposits at its Grasberg mine in Indonesia led to a decline of one-third in first-quarter production from the site, which is the world’s second-largest copper mine.
These charts come from the May 2006 CSC newsletter:
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Click here for daily tracking.
The Bet That Made No Sense
There was a bet made several years ago by some network engineers, cabling companies, equipment manufacturers and corporate strategists at carriers that speeds on copper would be increased and faster network speeds could be easily achieved on existing copper infrastructure. There was no need to upgrade to fiber. That was a dumb bet.
No matter how much you can squeeze on copper, my argument has always been that you can do so much more with fiber. If you’re building a new campus or single building, put in fiber as the communications network infrastructure. That will be the transmission medium that matches the lifespan of the building.
This argument goes back more than a decade. Some heeded it as others continued using obsolete rules of thumb for cabling infrastructure design. Frank Bisbee, the publisher of Wireville.com, said in his monthly newsletter: “If you thought the prices at the gas pump were shocking, you will be stunned by the price increases on copper-based cabling.”
He says the petroleum cost increases are spilling over to the cost of the resins for jackets and cabling insulation. The cable manufacturers are also facing a skyrocketing set of price increases on copper itself. One manufacturer says the price for copper has shot up more than 22 percent in the last three weeks. It’s not over, according to Bisbee. He got this from one of his suppliers:
We have reluctantly been forced to increase prices on all Cat-3, Cat-5e and Cat-6 cables. The new prices go into effect immediately.
Unfortunately, the manufacturers are raising prices almost continually, and therefore, our prices will be subject to these changes. Some manufacturers are reviewing prices weekly. Prices may continue to increase. General Cable, one of our suppliers and one of the largest in the world, made the following announcement:
“With copper rising at a much more accelerated pace, we must shift our pricing policies to recover these costs more quickly.
“In order to manage this incredible volatility of copper prices, we will adjust pricing on a weekly basis until copper resumes the steadier path. As we are trying to keep product prices as stable as possible, we will only adjust weekly product prices for every 10-cent increase in Comex. These determinations will be made every Friday at 1 p.m. EST.”
For many contractors and new facilities developments, Bisbee thinks that fiber-optic solutions have reached parity with the high-end, copper-based unshielded twisted pair (UTP) alternative.
This new round of major cost increases that has been added onto UTP will have many network designers reappraising their cabling infrastructure designs and calculating that fiber-optic cabling may be the new “best answer”. While each cabling infrastructure job should be evaluated individually, one message is universal: the price of copper cabling may continue to spiral upward.
Carlinism: If you are building a new facility, you should be looking at wireless and fiber-optics as your transmission medium. Copper is out.
The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.