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Copper is so expensive now that air conditioners are switching to aluminum

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(Bloomberg) – Copper’s surge to record levels this year is prompting buyers in a key consumer market to consider cheaper alternatives, in an early sign of how high prices could destroy demand.

Consumption is at risk in air conditioners, an industry that accounts for a considerable part of the world’s demand for copper. The world’s leading equipment maker, Japan’s Daikin Industries Ltd., plans to replace half the copper in its units with aluminum by 2025. And in China, a state researcher is working with the country’s major home appliance groups to use more aluminum. .

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“Rising prices of raw materials, copper in particular, are increasing cost pressure on air conditioner manufacturers,” Song Jingxue, director of the China Household Electrical Appliances Research Institute, said by telephone. “They can hardly pass that on to consumers given the low product differentiation, so many of them are looking at aluminum as a cheaper option.”

Air conditioners have long been a key destination for copper. In China, machines make up a large part of the 15% of copper demand for household appliances.

Copper spiked to record highs in May, and remains elevated amid speculation that a wave of demand from new energy sectors will short buyers short and push prices much higher in the coming years. That’s part of the sweeping commodity gains that pushed China’s factory inflation to its highest level in 13 years in August, putting pressure on manufacturers.

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While aluminum has also risen, measures to reduce reliance on copper reflect how they are preparing for long-term risks. Copper represents between 20% and 30% of the manufacturing costs of an air conditioner, according to the Chinese institute.

Changing preferences

Daikin has used aluminum in some machines since 2013 and plans to accelerate the switch given rising copper costs, spokesman Takashi Abe said. It currently uses around 90,000 tons of copper per year and manufactures more than 10% of the world’s air conditioners.

Fujitsu General Ltd., another Japanese producer, is also taking steps to make copper-intensive key parts such as aluminum heat exchangers, spokesman Takeshi Tobari said.

Copper is generally preferred due to its high conductivity for heat and electricity, but aluminum has advantages that include lower weight and generally lower cost. Copper prices above $ 10,000 a ton will accelerate replacement efforts, with heating, cooling and wiring applications most at risk, Morgan Stanley said in May.

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There isn’t much room for copper to fall given the looming demand boom in industries like electric vehicles, according to Daikin.

Long time

Song Institute in Beijing is establishing a working group with major air conditioning producers, including Gree Electric Appliances Inc. and Haier Smart Home Co., to promote the use of aluminum in heat exchangers. In China, aluminum is only used in small parts and some exported products.

Gree and Haier said they had no specific plans to boost aluminum use in response to inquiries from Bloomberg News.

The biggest obstacle to aluminum adoption, according to Song, is resistance from air conditioning buyers, because they tend to prefer copper-based machines. This was an issue during previous copper booms in 2005 and 2011 that also spurred the substitution talks, he said.

“People tend to think that copper is stronger than aluminum, as expensive material is always considered to be of better quality,” Song said. The replacement plans “may still take a relatively long time to be fulfilled given these market obstacles.”

© 2021 Bloomberg LP

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