Global copper prices have risen extensively this year due to Trump's tariff concerns, as well as China mapping out further stimulus to ramp up its economy.
While the gain in copper prices stands positive for metal companies, it has a negative impact on end user industries like the Indian cable and wire sector. Fluctuations and a rise in copper prices define the margins of companies like Polycab India, Finolex Cables, KEI Industries and RR Kabel.
Uptick In Copper Prices
Copper prices in London and New York based exchanges have gained 14% and 30%, respectively year-to-date. LME copper prices are currently trading at a record high of $10,170 per metric ton, while Comex copper prices currently stand at around $526.95 per pound.
Copper prices have been rising due to several factors. The increase has been mainly driven by US buyers stockpiling the metal, fearing tariffs from President Trump, which could hit in weeks, according to a Bloomberg report. Global supply has also been tight due to under-investment in mining and limited refinery capacity, despite strong demand. Further, China’s stimulus package announcements and a weak US dollar have also boosted metal prices.
Copper's Role In Cable & Wire Industry
Copper is a critically important raw material in the Indian cable and wire industry. This significance stems from its unique properties, which make it indispensable for electrical applications.
Raw material costs play a big role in the total costs of Indian cable and wire industry. This expense accounts for 79% to 85% of the total costs of cable and wire companies.
As per annual reports of cable and wire companies like Polycab India and KEI Industries, copper accounts for 54% to 62% of the total materials consumed.
Impact On Companies
As per a Motilal Oswal report in April 2024, the revenue movement of the Indian cable and wire industry has historically been in line with the change in copper prices. During FY18-21, the decline in copper prices helped margins improvement in the industry, as per the brokerage.
Thus, the increase in copper prices could lead to a potential uptick in the raw material costs of cable and wire companies. This could put pressure on the companies' margins. It is key to note that this industry is already a low margin space, with industry margins averaging around 10%-12%.
Can Companies Mitigate The Impact?
Ideally, to mitigate the impact of higher raw materials, companies need to:
Hedge against copper price volatility.
Seek alternative raw materials.
Increase product prices.
While companies do have hedging strategies in place to manage price volatility, they may not be foolproof and may not work effectively.
As per Anil Gupta, chairman and managing director of KEI Industries, for electrical cables, the only substitution available for copper is aluminium. However, this substitution is more useful for large-sized underground power cables. But for products like data cables, internal wiring cables, and more, this substitution cannot be done.
Lastly, while the industry can pass on some of the price increase to customers, the extent to do is subject to market conditions, demand and competition. For example, in Q2 FY25, RR Kabel management stated that the company was unable to fully transfer the increased costs to customers. This is what hurt the company's financials that quarter. A similar trend was also observed and impacted industry gross margins in FY22-23.
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