Here are the 3 things you need to know:

1. The Basics: where copper comes from and what it’s used for.
2. Copper Markets – how do they work?
3. Copper Prices – why are they constantly changing?

A Brief Primer

Copper is one of the oldest and most important metals in human civilization. It’s usage dates back at least 10,000 years and it’s use in making Bronze makes it the cornerstone of an entire period of human civilization (the Bronze Age). Today it’s used primarily in electronic devices and building wiring and piping.

Speaking of building wiring, copper is the main ingredient in almost every single one of our bulk wire products. This is true from both a weight standpoint as well as from a cost standpoint. It counts for anywhere from 40% to 70% of the raw weight of each of our bulk wire products. There are a few exceptions, mainly certain coaxial cables, but this is true for about 95% of our products.

Where does this stuff come from? Copper is mined throughout the world, but almost half of the world’s production comes from South America and most of that from Chile and Peru. The remaining half of worldwide copper production is spread pretty evenly among a bunch of countries you would recognize (the U.S., Australia, Canada, China, Russia and some others). The U.S. only produces about 7% of the worldwide total.

Bingham Canyon Mine, a copper mine located southwest of Salt Lake City, UT. This is the deepest open-pit mine in the word. To give you an idea of scale. See those little specs down in the bottom? Those are trucks the size of a house. Pretty cool, huh? Picture courtesy of Wikipedia.

An Exchange Traded Commodity

While South America might be the largest producer of copper, most of the world’s copper ends up in buildings and electronics in North America, Europe, and China. Those three geographic locations are all significant producers of copper, but they don’t produce nearly enough to meet their own needs.

So, how does copper get from a Chilean mine to construction sites and living rooms in North America, Europe, and China? Well…

Copper is an exchange traded commodity. All fine and dandy, you say, but what does that actually mean? It means that there are exchanges, or markets, where you can go to buy or sell copper.

If you’ve ever traded stocks, these exchanges work pretty much the same way as stock exchanges. There are buyers and sellers, each making offers to buy or sell copper at a certain price. If there are more buyers than sellers, the price is driven up. If there are more sellers than buyers, the price is pushed down.

So, to answer our earlier question: after copper is mined in Chile, it’s transported to copper exchanges throughout the world. From there, buyers take delivery of raw copper and ship it to factories for transformation into a multitude of products (in our case, wire). Let’s talk about some of these exchanges for a minute.

Statistics courtesy of the U.S. Geological Survey copper report.

The Copper Exchanges

There are copper exchanges in all the major economic hubs throughout the world, but the ones that matter to us are the London Metal Exchange (LME), Comex, and to a lesser extent the Shanghai Metals Market (SMM). These three exchanges all follow each other pretty closely and there usually aren’t major price discrepancies. The primary difference between the three is in the markets they serve.

Comex, which is a sister company to the New York Mercantile Exchange (NYMEX), is based in New York and serves the American copper market, so it’s priced in US Dollars per pound (lb). Since American wire manufacturers buy all their copper through Comex, their pricing is usually based on a specific Comex price, ie. $3.43/lb.

ICE, and other companies who manufacture in China, usually base their pricing on LME, because we buy all our copper through the London Metal Exchange. LME is priced in US dollars per metric ton (a metric ton is equal to 1000 kilograms, or 2,204 pounds).

Wait a second, why are we buying copper from the London Metal Exchange if we manufacture in China? Well, LME is kind of like the world market for metals. All the other exchanges mostly just serve local markets, but LME has over 600 warehouses throughout the world.

LME is the market that matters most to us. When we talk to customers, we always use Comex pricing, because it’s easier to understand, since it’s priced in US Dollars per pound, but we think in terms of LME pricing.

That leaves one other copper exchange; the Shanghai Metals Market. Shanghai Metals Market (SMM) is priced in Renminbi (RMB) per metric ton. Renminbi is the currency of China, technically the People’s Republic of China.

The truth is, SMM isn’t all that important to us. For some reason, most of the wire factories located near Shanghai, which is in the Eastern part of China, produce coaxial cable, and the sad fact of the matter is most of the coaxial cable that goes into the residential market in the U.S. has hardly any copper in it; instead, it uses steel and aluminum for conductors and shielding.

As a result, most of the products we build in factories that take delivery of copper through SMM don’t have much copper in them, so we don’t pay much attention to the SMM copper price. If we had it our way, things would be totally different. All the coaxial cable going into the residential market would have loads of copper in it, because copper is a much better conductor than steel or aluminum, but not everybody’s as discriminating as we are.

Availability and Volatility

The main advantage to having a commodity traded on an exchange is Availability. On any given day, you can go to one of the copper exchanges and buy copper. If the big Chilean mine is experiencing production difficulties, you can just by copper from an Indonesian or Australian mine. Rarely do exchange traded commodities become simply unavailable to buy.

One of the few times in recent history that any exchange traded commodity has become simply unavailable was several years back when there were worldwide food shortages. Governments of poorer countries restricted their farmers from shipping rice and grain to buyers in richer countries who could afford to pay more for it than (poorer) local buyers.

That example beautifully illustrates why exchange traded commodities rarely become unavailable: because as a commodity becomes scarce, the price goes up. Thus, the commodity is still available, but at a higher price. And that gets us to the main drawback of exchange traded commodities: Price Volatility.

Price volatility has been the copper story in the past several years.

The Copper Price Story

We’ll start with a chart:

This chart, which shows the price of copper in US Dollars per pound over the past 3 years, tells a pretty amazing story. Three years ago, copper was at about $4.00 per pound. Then, over a 6 month period, it lost about two thirds of it’s value (number 1 in the chart above). It’s worth stopping for a second to let that sit in.

In the span of six months, the market price for our products fell by about 40%. Of course, it would make our jobs too easy if prices stabilized, so they immediately started rising and have more than tripled in the last 2 years.

It hasn’t exactly been a steady rise, either. There have been some sudden, scary drops along the way. Witness number 2 in the chart above, where you can see that copper dropped 23% in a mere two months. When that happened, we were thinking, “Uh oh, here we go again.” Only to have copper start rising again!

What we’re trying to get across is that copper prices are volatile. Really volatile. They can easily move 1-3% in a single day.

To put that into perspective, when we give one of our factories the go ahead to start a production run, we have to order all the copper needed for that production run on the day we give the factory the green light. The price we pay for the copper is whatever price the LME market closed at the day before. So, the volatility in the copper market from day to day can easily mean a difference of several thousand dollars in production costs.

But Why?

Right about now, you might be wondering, “Why are copper prices so volatile?” That’s a really good question. If you figure that out, let us know…

We kid, we kid, but only a little. The huge drop in the chart above (number 1), coincides pretty nicely with the housing bust in the U.S. and the global economic slowdown. In theory, commodity prices should follow macro-economic events pretty closely.

This makes sense intuitively; more economic activity (buying goods or building stuff) equals higher demand for commodities, but the supply stays the same (because it’s hard to just go out and start new copper mines). Higher demand plus same supply should work out to higher prices.

In practice though, things haven’t quite worked out that way. For instance, why have copper price run up so high when we’ve only recently left the global recession behind? Sure, things are better now than they were two years ago, but they’re not great, and they’re certainly not as good as they were 4 or 5 years ago. So why is the price of copper higher now than it was in the midst of the boom times?

If we jump into a little Econ 101, one possible answer jumps out at us: reduced supply, in the form of production difficulties or labor disputes. If the demand for copper has stayed more or less the same in the past two years, but the supply has gone down, the price of copper should go up.

Production difficulties and labor disputes are common. We hear about strikes all the time at the big Chilean mines. There’s one problem with this theory though: the supply of copper has actually been increasing. Here’s a chart showing worldwide production over the past several years:

Statistics courtesy of the U.S. Geological Survey copper report.

Speculation and Inflation

If you asked us, we’d say all this madness is due to some combination of speculation and inflation. If you speculate that inflation is likely, the last thing you want to do is leave your money sitting as cash, since it becomes worth less over time. Commodities, especially metals, are a classic hedge against inflation.

If speculation and inflation, or speculation about inflation, are indeed the culprits, you’d expect to see similar price movements amongst all commodities. And we have; other metals (aluminum, silver, gold, you name it) have all seen price gains similar to copper’s, as in tripling and doubling over the last two years. And surely you’ve noticed higher oil prices at the pump.

We’ll stop our speculation there though, because we don’t exactly have PhDs in Economics and even the people who do have PhDs in Economics only get this stuff right about half the time, and that’s guaranteed because half of them are saying one thing and the other half are saying the opposite.

Let’s just say that these are some strange times. How strange? Check out this screen shot of a Google News search for “copper speculation.”

See that? Two articles from the exact same day saying the exact opposite thing. That’s the environment we’re operating in. Absolute madness!

We’ve come to the conclusion that price volatility is just going to be a fact of life for the foreseeable future. So, instead of focusing on price volatility, something we cannot control, we’ve focused our energy on making sure that our response to this volatility is systematic, rational, and predictable.

Part 2 Coming Next Week

Hopefully, you’ve gained some insight into how copper markets works and why prices are so volatile.

Next time we’re going to talk about how ICE, and the wire industry in general, respond to this volatility. In other words, how we go about setting prices. Here are 3 things you’ll learn:

1. How price changes in the copper market affect bulk wire prices.
2. Price volatility of American vs. overseas manufacturers (like ICE).
3. How our price change methodology works.

Next Article

Today’s topic is wire pricing. Here are 4 things you’ll learn today:

1. Does copper volatility really matter that much?
2. How often do we change prices?
3. How do we know when to change prices?
4. How are American manufacturers different?

Does copper volatility really matter that much?

Absolutely. The cost of copper in a box of Cat 5e has gone up by $35 in the last two years. No joke, that’s a real number. What’s even crazier is that the cost of copper in a single box of Cat 5e often changes by more than $5 in a week. Here’s why.

Some products have relatively fixed production costs. Each time the manufacturer goes to make the product, the cost per unit stays the same. A good example of this would be soda pop. Most of the cost of a $1 bottle of pop is branding, marketing, and transport. The cost of the raw materials in a bottle of pop; water, sugar, etc., is a few pennies, so even if they double in cost, it doesn’t have much of an effect on the total cost to make a bottle of pop.

Other products have variable production costs. The best example of this is a gallon of gasoline at the pump. Most of the cost in a gallon of gasoline is what the gas station owner paid for the gasoline, only a tiny fraction represents overhead and maintenance costs on the gas station. So, if the cost of gasoline on the wholesale market doubles, the cost of a gallon of gas at the pump is going to go way up.

These two products represent opposite ends of the spectrum. While soda pop is consists almost entirely of fixed costs, with a tiny amount of variable costs, a gallon of gasoline is the exact opposite; mostly variable cost, with a tiny amount of fixed cost.

Wire is somewhere in between these two extremes; some of the cost of a spool of wire is fixed and some of the cost is highly variable. To get a better idea of what’s going on, let’s look at the costs that go into a 1000 ft. box of Cat 5e:

• Copper: 11 lbs
• PVC: 9.5 lbs
• Box/Packaging: 2 lbs
• Labor
• Shipping & Handling

Most of these – PVC, box / packaging, labor, and shipping & handling- are fixed costs. Technically, these costs do change over time, but they usually change gradually. A good example is the cost to ship containers from China to the U.S., which has changed quite a bit in the last year, but shipping is kind of like the sugar and water in the soda pop example above; it just doesn’t make much of a difference either way.

In recent times many of what we have historically considered fixed costs have been increasing rapidly. That includes PVC, cardboard, and FEP (the jacketing compound for plenum rated cables). In fact, DuPont, one of the main suppliers of FEP, just announced a 40% price increase effective March 1st.

That leaves a single variable cost: copper. Our previous article talked about copper and how volatile copper prices are (clif notes version: they’re insanely volatile), which suggests a question: do copper prices really affect the price of wire that much? You betcha!

Let’s take a look at how this applies to our Cat 5 example from above:

Woah, did you see that? The cost of copper in a box of Cat 5 has gone up by $35 in the last two years. No kidding, those are real numbers! What’s even crazier is that the cost of copper in a single box of Cat 5 often changes by more than $5 in a week.

So, a box of wire has a bunch of fixed costs (PVC, box, labor, shipping & handling) and a single, huge variable cost (copper). Our cost structure reflects this. Each product we make has a base cost, which represents the PVC, box, labor, and freight; and what we call an adder, which is tied to the market price of copper.

How often do we change prices?

Historically, we’ve changed prices about 2 times per year. Since the price of copper has become so volatile, 8 weeks has become the typical interval.

These two facts: 1) that each production run takes about 8 weeks to reach us, and 2) that the costs for all the products on a given production run are based on a single copper price, determine when and how often we have to change prices.

For us, and for most other overseas wire manufacturers, prices change at most about every 8 weeks. Recently we’ve been at about 12 weeks between updates, but some of our overseas competitors have been at 4 weeks. Here’s how tis all works

We build all of our bulk wire in Chinese factories and then transport it to our warehouses in the U.S. via boat. As a result, we do all our production runs in container-load increments. If we sell a bunch of 16-2 speaker wire today, we can’t just call down to Jeff on the factory floor and tell him to make another 10,000 feet.

Instead, every few days we run inventory reports which tell us how how much of each product we need to schedule for production. From there, a work order is sent over to our factory. They typically take 3-5 weeks to finish the production run. Then it spends another 2-3 weeks on the water, in ports, clearing customs, etc. – the whole process takes about 8 weeks, or 2 months.

I just made that process sound way simpler than it actually is. It’s made much more complicated by several things: 1) we make several hundred different products, 2) each product has a different run rate (how many units we sell each month), 3) we’re building product today that we’ll be selling in 60 days, which means that if we don’t build enough, we’re kinda between a rock and a hard place. I could go on, but you get the idea.

We’ve got production runs going all the time. Remember how we said part of the cost for a box of wire is based on the current price of copper? Well, we buy all the copper for an entire production run the day we give the factory the go ahead. This means that the cost of all the products on an entire production run are based on a single copper price – the closing cash price of the LME copper market from the previous day.

At any given time, we have an 8 week supply of product in various stages of manufacture. So, when we sit down to set prices, we know what our average cost of goods sold will be for the next 8 weeks. This advance knowledge of our cost structure allows us to set prices at a level that we’ll comfortable with for at least the next 8 weeks.

Beyond 8 weeks it’s a toss up though. It’s not uncommon for us to go well beyond 8 weeks between prices changes, but it just depends on what’s happening in the copper market, which dovetails nicely into the next section…

How do we know when to change prices?

When the price of copper falls outside our range of reasonable profit margins, we have to change prices. Each pricing level has a range of comfort for us, which is expressed as the actual copper price our prices are based on, plus or minus $.30/lb.

A real life example from about 6 months ago is $2.95. Again, plus or minus $.30/lb. So, as long as the price of copper stayed between $2.65 and $3.25, we didn’t need to change prices.

How did we come up with this $.30/lb range of comfort? Lots of experience, mostly. If copper is toward the top of this price range, we make a little less money, because the cost of our products go up, and if it’s near the bottom of this range, we make a little more money, because the cost of our products go down. Over time, these average out and we’re in a comfortable spot.

If we get outside of this range though, we know from experience that we’re either making too much money and our prices are no longer competitive, or we’re not making enough money to keep the doors open and the lights on. So, it’s when copper get’s outside of this +/- $.30/lb. range of comfort that we know it’s time to move prices.

Let’s play with a an example scenario so you can get a good idea of how all this works in practice. Let’s pretend we’ve just set prices knowing that our cost of goods sold for the next 8 weeks will be based on an average copper price of $3.95/lb. That gives us a comfort range of $3.65/lb. through $4.25/lb.

If we start a new production run at $4.10/lb. copper, we don’t need to move prices, because we’re within our comfort range. If, however, we start a production run at $4.30/lb., we’re probably going to need to move prices.

Why only probably? Why not for sure? Well, the next two production runs after that might be below $3.95 copper and the average of the three might still be within our comfort range. Whenever possible, we try to keep prices stable.

How are American manufacturers different?

We mentioned earlier that the frequency of our price changes is based on how long it takes us to build and transport a production run? Well, the result – that we typically go at least 8 weeks between price changes – is fairly typical for all wire companies that manufacture overseas. We don’t all change prices in lockstep, but pretty much all of the overseas manufacturers are changing prices within a few weeks of each other.

American factories, on the other hand, are a whole different story. They don’t have 8 weeks of product in progress at any given time. Instead, if they’re running low on 16-2, they can just call Steve down on the factory floor and tell him to make another 10,000 feet. That’s for the products they stock. Because their turn around time is so short, they choose not to stock a lot of stuff. Instead, they just make it when a customer orders it.

For these reasons, most American wire manufacturers operate on what’s called spot pricing. This means that the price you pay is based on the price of copper on the day you place an order. In other words, there are no price sheets. If you need a price, you call ‘em and they give you a price, and that price might only be good for a few days.

That’s how the majority of the American wire manufacturers work. Some of them do publish price sheets, but when they do, they usually change prices every 15-30 days. Why? Simple, they only stock 15-30 days worth of inventory, which means that, unlike us, they don’t know what their cost of goods sold will be in 2 months. So, they can set prices, but those prices will only be good for a few weeks, then they have to set new prices.

Outro

Hopefully you’ve gained some insight into how pricing in the wire industry works.

Here are 4 things you’ll learn in the next article:

1. How do we know what to change our prices to?
2. Why are some manufacturers always higher/lower than others?
3. How does product quality make a difference?
4. Are some prices too good to be true?

Next Article

Today’s topic is ICE’s pricing. 4 things you’ll learn today:

1. How does ICE know what our prices should be?
2. Why are some manufacturers always higher/lower than others?
3. Are some prices too good to be true?
4. Does product quality make a difference?

How does ICE know what our prices should be?

Essentially, we ask ourselves, “If we sit down with a customer, knowing that they’ve probably got current pricing from our competitors, will we be able to stand behind these prices?”

When the answer to that question is yes, then we know that we have the right prices. To get there, we use human judgement, informed by extensive analysis. Here’s how we do things.

Margin Analysis

It all starts with a margin analysis. We take our current prices and the copper price they’re all based on, and throw them all into an epic piece of custom software. That bad boy gives us gross margins, in both percent and dollars, on all of our products.

Then we feed it a new copper price and it churns out a bunch of new prices for us. The new copper price we feed it is simply an average of the copper prices that all of our on-hand inventory and in-process production runs are based on.

For each product we make, the software gives us two prices; 1) the price we have to sell at the make the same percentage margin, and 2) the price we have to sell at the make the same dollar margin. So, why both percentage and dollar margin? Why not one or the other?

Well, they’re both useful for different reasons. Imagine a world where we sold the same quantity of each product every month. In this imaginary world, if we kept the dollar margin the same, whether prices went up or down, we would make the same amount of money every month. Our overhead costs don’t really change much, so this would be the ideal scenario for us.

But this is like one of those ideal scenarios in a textbook that’s good to illustrate a concept, but doesn’t actually work out in real life. There are other factors that come into play when prices change. Usually, when prices go up, customers buy less of the product. So, if you kept dollar margins the same, you would be making the same profit per item, but selling less items, and thus making less money.

Percent profit has the opposite problem; if you keep your percentage profit per item the same, you end up with prices that are too high. Think about it; if you raise prices by, say, 10% and keep your percentage profit the same, you end up making 10% more profit. If you magically start making 10% more money, it’s pretty much guaranteed that your prices are too high.

So, same-dollar acts as the lower limit on prices and same-margin acts as the upper limit on prices. Think of them as goalposts; the real prices have to come in somewhere between the two. That’s why I said price changes are about human judgement, informed by analysis.

Competitive Analysis

Okay, cool, so that’s it, right? Nope, that just tells us where we’d like to be price-wise. The problem is that we don’t exist in a vacuum. We can’t just go to market with the prices we’d like to be selling at. We have to be sure our prices make sense in the competitive landscape.

We call this phase the competitive analysis. We consider where we’d like to price our products in the context of the current conditions of the marketplace. If, based on those conditions, we need to make changes, we do. Amongst the questions we consider are:

1. Has the rest of the market moved their prices yet?
2. What is the timing of this move?
3. How does their quality compare to ours?
4. The competitive analysis is done when we feel confident that our prices are competitive in the marketplace.

Why are some manufacturers always higher/lower than others?

Two reasons really:

1. Different Production Costs
2. Management Efficiency (or Inefficiency)

Different Production Costs (overseas vs. American)

Differing labor and overhead cost structures are a common theme in any industry, but the wire and cable industry has a built in divide between companies with factories in the U.S. and companies with factories overseas.

As you can imagine, labor costs in the U.S. are much higher than they are in, say, China. But labor’s not the only cost that’s higher in the U.S.; land and buildings (or Plant & Equipment, as our accountant calls ‘em) are also more expensive. The result of this difference in cost structures is that U.S. wire companies tend to be more expensive than wire companies, like ICE, who manufacture overseas.

Now, as the price of copper goes up and copper becomes a much larger portion of the cost of a box of wire, this price advantage diminishes because everybody pays the same price for copper. Still, this cost advantage is always there and it makes a pretty big difference; we’re significantly less expensive than almost every American wire company.

Management Efficiency (or Inefficiency)

Okay, fine, that covers American factories, but how do we compare against other companies who manufacture overseas? Or, more generally, how do companies with similar production costs compare to each other?

Some companies just get more work done with fewer people, for various reasons. We don’t know why exactly. Maybe some companies are too top heavy with managers. Maybe others just get more work out of their people. Look, we’re not saying we’re Harvard Business School case study material, but we’ve definitely noticed that some of our competitors are always just a bit too expensive.

So, to recap, we’ve got two types of wire companies: 1) those with different labor costs (overseas vs. American), and 2) those with efficient or inefficient management.

Are some prices too good to be true?

You bet! Pretend you’re bidding on a modest sized home theater project. You bid $30,000. You know your costs pretty well. You know this is a solid bid. Not too lean, but not really fat either.

If you lose the project to a $27,000 bid, you wouldn’t think much of it. Maybe your competitor really needs to keep his guys busy or something. But what if the homeowner told you that you lost to a $15,000 bid. You something’s wrong; one way or another, that job is not going to turn out well.

Yeah, that’s the kind of stuff going on in the wire industry. To really illustrate what we mean here, let’s take a look at this breakdown of Cat 5e cost components that we included in Part 2 of this series:

• Copper: 11 lbs
• PVC: 9.5 lbs
• Box/Packaging: 2 lbs
• Labor
• Shipping & Handling

We’ve already talked about labor and how that affects price, so if there is a third type of company with a drastically different cost structure from the first two, the difference has to be somewhere in Copper, PVC, Box/Packaging, and/or Shipping & Handling.

We can take shipping & handling off the table, because everybody gets pretty much the same rates from UPS, Fedex, and the trucking companies. We can also take Box/Packaging off the table, because the cost difference between our best-in-class Big Mouth Payout pull boxes and a no-frills, brown pull box just doesn’t affect the final cost that much.

That leaves two ways for a company to drastically change their cost structure: copper and PVC. Ain’t that the darnedest thing? But, you ask, does this actually happen? Are there really wire companies out there swindling misleading their customers like this?

Sad to say, it is in fact true. Don’t take our word for it though, here’s CE Pro magazine and Cabling Installation & Maintenance magazine saying the same thing.

It kind of makes sense in a sleazy way. Copper and compound are the easiest ways to reduce cost in wire. If you reduce the amount of copper in Cat 5e from 11lbs to 9lbs, at $4.50/lb., you just reduced your cost by $9 per box. Imagine if your Cat 5 cost $9 less per box.

That’s actually a true story, by the way. As we’ve mentioned, the price of copper has skyrocketed this year. While it was on it’s meteoric rise, we noticed that one of our competitors was somehow keeping their prices incredibly stable.

It kind of struck us as funny. The cost for us to produce Cat 5 had increased by over $10 per box over the course of about 6 months. But here were these guys who had barely raised their price on Cat 5e by two bucks. We were kind of like, “That’s weird.”

So we obtained some of their Cat 5e through side channels. Lo and behold; it’s missing 2 pounds of copper. That was a real eye opener for us on the sleazier side of human nature. We had always kind of suspected that this type of thing was going on, but we never really thought somebody would actually, you know, rip their customers off like that. Sorta like an “only happens in the movies” type of thing.

But there you go, it’s happening. A lot. We’ve got tons of other stories just like this one. Basically, for any given way you can reduce cost by removing and/or substituting expensive materials with low cost, subpar alternatives, there’s a company out there doing it.

Some guys are reducing the thickness of their copper conductors. Other guys are substituting an aluminum conductor in place of what is supposed to be a copper conductor, then putting a copper coating on the aluminum to keep it from being obvious. We’ve also seen riser rated compound substituted for (much more expensive) plenum rated compound.

Does product quality affect price?

Absolutely! But it depends on what aspect of product quality we’re talking about.

Some enhancement and innovations are inexpensive to implement, but can have a huge impact on the usefulness of the product. Other features, like our Big Mouth Payout (BMP) boxes boxes can be very expensive to implement. However, we work very hard to ensure that the overall impact on the final cost of a box of wire is minimal.

Still other things, like having the proper gauge conductors and using the correct jacket compound, do affect price. But we feel like these are the aspects of product quality that matter the most. Wire & cable stay in walls for a long time, often decades, and having the right gauge wire, built to tight specifications, with the right jacketing material are important.

So, how can you tell if you’re buying quality wire? It’s easy enough with the right equipment and some spare time, but do you really have the time? Does your customer? The best way to make sure you’re installing quality wire is to work with a reputable vendor.

You will usually find a large variety of products within any industry. These products will all have the same function, mostly the same packaging and claim to do the same thing. But there is something that always varies and is immediately obvious—the price tag.

Price is what typically separates high-quality products from their low-quality counterparts, at least in the consumers mind. The dealers and manufacturers may know the back-story and history of every product in their warehouse, but the customers certainly don’t. And with only price to go on, how can they guarantee they are:

1. Not paying too much (for something that doesn’t seem worth it).
2. Not paying enough (for something that isn’t worth the few dollars they saved in buying it).

And in the cable industry, this can be very tricky for consumers, because the importance of cable costs isn’t always on their mind…even if there’s a large chance of them being ripped off! The reason for this article today is to go behind the scenes and tell the price story to give you, the customer, the dirt on the industry. A small warning first: not all cables are created equal.

One of the biggest problems in the cable and wiring industry is simple: Everyone is trying to cut price. That’s a problem because it sends out a false message to the marketplace that prices should be less than what they really are. As the old saying goes: “If it seems too good to be true, it probably is”—and that is definitely the way of the cable industry. Unfortunately, there are no secrets or aces that manufacturers can magically pull out of their sleeve to make a high quality, dirt-cheap cable. It just doesn’t happen.

So, why do companies vary so much in price? What is the secret, and what is the story behind the price?

The answer is in the copper market.

If you were to take one of the most common and popular cables out there, Cat 5E, and cut it open, you would find that it is primarily made of copper—in fact, most cables are. So, there is an obvious dependency on copper by the manufacturers. For a long time the copper market was stable and costs stayed the same year after year. But the copper market suffered with the ups and downs of the economy, which caused massive and instantaneous price fluctuation in copper.

Unless you’re in the industry or have an interest in the copper market, you wouldn’t be aware of this. You wouldn’t be aware of the market instability, that the prices are continually changing in such a volatile manner. And most people aren’t aware that manufacturers don’t generally keep a large supply of product in house, usually just enough for a few weeks. Whenever they “stock up” they find their prices swinging wildly with the whims of the marketplace—and in one way or another, the marketplace is ruthless.

So now we have customers who are confused because the prices of cable are changing monthly, weekly, daily, with no end in sight. Different companies have paid very different prices and carry different sizes of inventory—so the company you got a great deal with before has dramatically increased their price and dealers have no idea why.

To make things worse, most vendors aren’t letting anyone know about it. Would it take too much time to send off an email saying “Hey, here’s what happened, copper just went up by 10 percent and you’re going to see a 10 percent increase from us”?

So, what does this mean for the customer? To put it simply, it means that at any given time, because of the constant and sudden fluctuations of the marketplace, customers have no way to know whether they are getting a good deal or not. They don’t have time to do all the research, watch the copper market, watch the prices fluctuate and know when to buy and when to wait, because to do that would take an exhaustive amount of time and energy. And since in the customer’s mind, “cable is just cable”, would it even be worth it to them just to save a few bucks?

The way that ICE Cable is distinct, and the reason customers know they will always get “below market pricing”, is that we do a vast amount of study and analysis of the market. It’s easy to turn to your buddy and say, “It seems like the price of copper is going up” and think that you are reading the market, but ICE Cable works off of the hard data, garnered from weeks of compiling document after document and putting out hard hitting analysis.

Here is a brief explanation of one of our spreadsheets on one of the most common cable, the Cat 5 enhanced. It lists out all of our costs, documenting each change in the marketplace, no matter how slight. We have what we’re selling the Cat 5e for, what our competitors are selling it for, and then the margin differences between those competitors.

Therefore, with all of those studies and hard facts, ICE can always confidently say “Relative to this company (let’s call it company x), on this SKU we’re 5 percent less. So, compared to Company X, if you’re working with ICE, we’re going to be on average 6 percent less than those guys”. In the context of many years worth of analysis we can say that historically, over the course of years, we consistently price out below the average in the marketplace.

This is what we mean when we say, “With ICE, you’re getting below market pricing. We know what the market is and have all the stats on major competitors”. Every SKU may not be less than every single competitor, but on average, that’s where you will end up: below the market. And if you do this type of analysis consistently, like ICE does, it frees up time and effort for the dealers who don’t want to do the in-depth research that is required to ensure the best possible price in an unstable copper market.

We can guarantee that our competitors aren’t doing the extent of homework that ICE does on the market. And even if they are, they’re not communicating it to their dealers, leaving them out in the cold, hoping to find a good price on wire and cable. One of the most common situations we see are dealers pulling out the price sheets from 5-6 months ago and, depending on how low prices were for cable at that time, thinking that they are still getting a great deal.

They don’t even realize that the market has fluctuated so much; often times they’re being charged 20% more for the same product without even knowing it! This happens because they are not watching the invoices that are coming through carefully enough.

ICE Cable notifies the dealer of price fluctuations, simply because we feel it’s the right thing to do and an honest way to handle our business. If a customer has a job coming up down the road that requires wire and cable, they are expecting the price listed at the time. If a couple of months pass before they’re ready to buy, they look at the prices, realize they may be paying 20% more and, understandably, get upset.

So, we take it upon ourselves as our personal duty to protect them and let them know of price fluctuation and changes as they come.

There is a crucial difference between the manufacturer of a product and a manufacturer that really understands the business they are in. And with ICE you know we are protecting our dealers and customers as we research, study and plan based on how the market ebbs and flows. With that knowledge, we get a general understanding of the patterns, details and nuances that most people just aren’t aware of and armed with that knowledge, we can provide extremely accurate depictions of what’s happening in the market and can advise dealers especially in the way of inventory, when to stock up, when to wait it out, etc. This permanently eliminates a dealers need to micro manage the market. That information and a “we’ll take care of you” mentality is recognized and we find ourselves becoming a long-time and trusted vendor.

And that, in essence, is the price story.

It can seem like a strange concept, and a typical customer would assume “I’m paying 100 dollars for 100 dollars worth of product” but that just isn’t the case. There are hidden costs, extra costs, indirect costs or what we call “soft costs”. Soft costs are all of the other things you are paying for in addition to the price of the box. There are several examples of soft costs that will help you better understand exactly what it is, and how to can avoid it such as additional labor required to deal with bad boxes or the extra scrap that’s results from uninformative foot markers.

Initially, saving money on the cheapest cable available seems like a good thing until you realize the reason this cable is so cheap is because the manufacturer has cut corners on the specification and saved money on the materials. This means copper shaving and unfortunately reducing or eliminating the UL listed fire safety compounds. The performance is compromised and the safety as well. If the building goes up in flames there is potential liability for having non-UL compliant cables on the job. This obviously discredits the installer’s reputation and puts both him and the client at risk if there’s a failure.

Cheaper cable almost always less material (copper). We believe it never makes sense to take this route for the simple reason that there’s only one opportunity to pull the cable with the walls still open. Once the walls close up you better be sure you’re cables are 100% up to specification because the cost to fix it now is exorbitant. Redo the cabling in a finished job is a nightmare of colossal proportions. Is it worth it to take the risk to save a few bucks? Absolutely not.

The efficiency of a job and is extremely important from all aspects. Anything that will slow a job down is going to end up to be a large inconvenience, adding unnecessary labor costs, which the consumer has to pay for. And in the consumers eyes, if the installer is adding on extra hours and dollars to the job, simply because of quality of the cable that they are using, that doesn’t seem like a viable reason to them. And nobody wins when you have to pay more for labor costs as a result of inefficient products.

ICE Cable is different. There are several unique innovations that we have built into our products as well as the dispensers and boxes that are guaranteed to cut down on the time needed to do the job and will therefore increase efficiency in all aspects. This is important because from a dealers perspective, ICE is the kind of company that you want to buy products from because they are focused on making things run smoothly and efficiently on your jobs. Our BMP boxes have eliminated kinking, knotting, tangling other pulling problems which slow down the pulling process. If you have to perform surgery on your boxes you’re not pulling cable and that will cost you. Ascending descending foot markers reduce scrap by letting you know exactly how much cable you have left in each box. Direct burial rating reduce redundant, unnecessary inventory allowing you to spend less. There much more, but this is the type of soft cost saving you should be achieving with your bulk wire and cable.

So while compromised cable may save you a few bucks in the beginning, will most likely come back to haunt you in the end. Consider what you are actually getting before you buy. We think you’ll agree that getting the good stuff is the way to go.

And on the surface, it seems like a great deal to see a price significantly lower than the others on the shelf. It’s a thrill for all the bargain hunters out there. But unfortunately, it is not what it seems. The old saying “If it seems to good to be true, it probably is” applies perfectly in this situation. So, when you see wire and cable priced much lower than any other price you’ve come across, or significantly lower than the legitimate suppliers, it should raise a red flag in your head.

Several cable companies have changed the game up when it comes to distributing cable. Instead of setting up long term relationships with vendors and customers, these companies have adapted to appeal more to the customers who are looking for the ‘deal of the day.’ The way this works is that cable companies see a low price on materials or cable, then grab as much as they can and then market it at an extremely low price. The problem with that is even though you as the customer may be getting a good deal one day, within a few days or weeks the price fluctuates again; it is not a sustainable or reliable price.

The method that these companies use is called stop-gap buying. It fills the void for now, but it causes more problems than it solves. What these companies should be doing is called sustainable buying, where product is purchased consistently in order to establish a consistently low price. The main downside to stop-gap buying is that it cannot be systematized and therefore, cannot be relied on. When these extremely low prices appear, it is typically because the cable company has bought either defective product or extremely old copper that has been sitting in a warehouse for a long time. So, even if you’re getting what you might consider to be a bargain on this overly cheap cable, it will come back to bite you in every way. The next time your customers expect that amazing and you can’t deliver, you’ll have a problem. It also means you have to get different cable from different vendors in order to keep it up and you’re constantly selling a different brand of wire and cable to your customers. Over time, the market won’t put up with it.

Unfortunately, this is a very common thing in the cable industry. And the biggest problem that comes from this stop-gap buying is that since the materials in the cable are questionable at best and defective at worst, the reliability of the product becomes a huge issue. Vendors and installers can’t honestly promise consistency and reliability in this cable. Ultimately, the installers want to be working with reliable product, because the quality of the cable will reflect on their credibility with the customer. A problem with the wiring means a huge problem with job. It’s guaranteed they don’t want to explain a problem with defective cabling to their client.

So, if they are getting different cable from different manufacturers all the time, installers cannot depend on the quality of the product; can’t ensure the reliability of the product and in essence, cannot do their job 100%. So, when buying cable, always remember, “If it looks to good to be true, then it probably is”.

First, this idea is much more popular in the commercial cable industry than the residential, but it doesn’t make it any less of a problem. There is a stigma in buying from an established and big brand or big name company that is comforting to consumers.

But the big companies have caught onto this and are charging higher prices than everyone else and in most cases by a lot. Why do they do this? The reasoning is simple. Because they can. The large companies are aware of the impact that they have in the marketplace and are secure in knowing that people will pay more if they think that they are getting something better or of a guaranteed higher quality. They know of all the junk cable that floods the market and are taking advantage of the “opposite approach” which says charge exorbitant prices for the quality that is standard is the marketplace. So by not cheating and cutting corners they think this justifies such high prices. And a large percentage of people will pay more money just for the brand name and to “be safe”.

So, big company equals higher quality, right? Unfortunately, this is not the case. The problem here is that any wire and cable company who knows what they’re doing can manufacture cable to the proper spec. And frankly, most companies know how to make a cable perform the way that it is supposed to, how to make sure it meets or exceeds all the safety ratings.

At ICE Cable, not only do we pay close attention to making a quality cable by making sure it meets spec and the various safety ratings, but we also are extremely diligent about getting vendors and customers the best deal possible. What does that mean to you? It means that our cable is significantly lower cost than the typical big name company out there and made to the proper spec. It is the best of both cable worlds, with a company like ICE you can expect quality cable that is dependable and you can be confident in and our prices are at what we call “Below Market Pricing”.

For consumers out there, this is very relevant to you because if the installer managing your project is spending way too much money on cable simply because they like big name companies, all of those extra dollars are getting passed onto you. And for what? To pay for the brand name of a big company. So, be proactive about this and don’t just trust that your installer is going to make the right decision. Ask him a few easy questions that can cut the cost of cable for your entire project…in just a few minutes.

What cable are you using?

Does it meet the specification and safety standards?

How does the price compare to other cables that meet proper spec?”

Understandably, since you’re the consumer, you want to trust your installer and you may be hesitant about this, since you’re not “The Expert” in this case. But as the customer, you need to make sure your money is going where you want it to go, and simply asking is the easiest way to achieve it. The best solution is to go with a company like ICE, with all of the quality of the big name company but with aggressive pricing.

One more thing to consider. These big companies are no longer specialized wire and cable companies, they have grown, acquired or bought other companies and most attempt to be a one stop shop, selling more products they can handle. They typically don’t have the staff, the knowledge or the wherewithal to be spread that thin. Pretty soon they’re not really a cable company anymore, they’re a supermarket with operators on standby. And honestly, you don’t want to work with a company like that.

If you’re looking for wire and cable, go to a wire and cable company. It’s that simple. And if you’re looking for high quality at pricing that’s below the market average, ICE Cable is always the way to go.

In the wire and cable industry, especially, where customers don’t know all of the ins and outs about cable, it can be difficult to know what to buy, so most people instinctively go with the bigger companies because there is a certain safety and comfort in the idea of a big company and a well known brand.

Not to say that these companies don’t make quality products. They typically produce products of the same quality as everyone else, the only difference is that because they have a large company, a company that’s been around a long time and a recognizable brand, they can charge a lot more for the exact same cable!

These large companies are extremely aware of the power of their brand and that people will pay whatever they need to as long as they feel security when buying within the brand. And these companies can get away with it because they’re making quality products, but certainly not worth the large price increase they charge.

Since wire and cable is a fairly simple industry, these companies don’t have a lot of obligations when they are making cable besides the obvious specifics like touching on all of the safety ratings and creating the cable to the proper specifications. Therefore, since it’s so easy to make a cable that is satisfactory to most customers’ standards, it is also easy for these companies to charge exorbitant fees exactly the same product, based on the consumer confidence in their brand name.

So, if the product is the same whether you buy from a small, medium or large company, wouldn’t you rather be getting a good deal on cable than paying extra money for nothing but a brand name? At ICE Cable Systems, we not only meet all of the specifications and qualifications that other companies do, but we have brand appeal and are consistently priced significantly lower than most of our competitors. We call this “Below Market Pricing”.

The advantage to this is that as a customer working with ICE, you will always know that you are getting quality cable that meet specs and is going to perform exactly as it is supposed to but at a much smaller price. Another aspect of why buying ICE is ideal for most consumers, if you’re starting a project on your home or business and your installer is buying the cable, he might be buying from bigger companies that are going to charge much higher prices, and who has to pay all those extra dollars ultimately? The consumer does.

If you are in the process of an installation, here’s a quick tip to ensure that you’re getting the best deal possible. Make sure that you’re looking closely at the pre-wire line item in your bid, that way you can determine the price of the cable being used and figure out if you or your installer can find it cheaper elsewhere. You don’t have to be massively educated on the industry or know all of the ins and outs of cable and wire, all you have to do is take a quick look at your bid and ask a few questions, regarding the price and if the materials being used are truly the right ones to use for the job you’re doing now.

Those few questions take about 5 minutes to ask and can end up saving you hundreds and even thousands of dollars on your project.

Here’s one more thing to think about. Although in the past, big companies were “specialized wire and cable companies”, that is now just a thing of the past. Most of these big guys can’t support all of the extra SKUs, don’t have the staff, the knowledge or the wherewithal to be spread that thin on that many product groups. If you were buying from a cable company, wouldn’t you rather buy from a business that specifically sells wire and cable instead of a one-stop shop that just happens to sell cable as well as a thousand other things?

And that is another thing that ICE is the expert at: Cable. Being a wire and cable company, we know all of the ins and outs of the industry as well as below market pricing and excellent customer service. And at ICE, we feel that if the dealer is getting what they need, than in turn the consumer gets their needs met as well. And that is our main goal.

For more information on ICE Cable Systems please contact us at 310.444.1950. We can also be reached at sales@icecable.com or on the web at www.icecable.com.

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Industry Leading Innovation

We’ve engineered our products to make them different and better in every way possible, including by eliminating the number one problem with bulk wire; bad boxes leading to poor cable payout, which we solved that with our Big Mouth Payout boxes. But we didn’t stop there, innovation is widespread throughout our entire product line.

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