As copper prices soar to a 45-year record high, cable thieves targeting copper are rampant in the United States. Their method is to cut copper wires that transmit signals to telephone and internet lines and resell them. The Wall Street Journal (WSJ) reported that there are also frequent cases of prying open manholes or shaving asphalt to steal underground power lines. This is due to a surge in demand for copper, the key material for electrical wiring, driven by the boom in artificial intelligence (AI) data centers.
Typically, such a surge in the prices of raw materials including copper acts as an expense burden on manufacturers, but the cable industry is an exception. That is thanks to the inclusion of an "escalator" clause in supply contracts that immediately reflects raw material price fluctuations in the product sale price. On top of this, as power grid demand surges due to the spread of AI data centers, not only copper but also demand for finished goods cable products is being stoked, raising expectations in Korea for stronger results at cable firms that use copper as materials and supplies, including LS Cable & System and Taihan Cable & Solution.
◇ copper hits record high… cable industry sales jump
According to the London Metal Exchange (LME) on the 8th (local time), the spot price of copper that day hit a record high of $11,695 per ton (t). It has surged nearly 30% over the past year. Global investment banks (IBs) see this upward trend continuing for some time. Citigroup and JPMorgan predicted that in the first half of next year copper would rise to $12,000 per t and $12,500 per t, respectively.
Copper's high-altitude run is because supply is far short of explosive demand. As aging at mines around the world has eroded productivity, and because it generally takes more than 10 years to develop and begin extracting from new mines, it is difficult to increase supply immediately. Meanwhile, AI data centers, dubbed "power guzzlers," are surging, and the build-out of wind and solar power plants and electric vehicle (EV) infrastructure is accelerating, sending copper demand soaring out of control.
For cable makers that use copper as a core raw material, this price rise is a boon. Depending on the product category, copper accounts for 60% to as much as 90% of cable manufacturing costs. When copper prices rise, cable sales prices automatically go up under escalation clauses, which in turn expands corporations' top-line revenue.
A cable industry official said, "When selling prices rise and the scale of sales grows, a 'economies of scale' effect occurs in which fixed costs such as labor and depreciation occupy a smaller share of total sales, which also partly helps improve operating margins." There is also an effect of increased profits as the valuation of copper inventory asset holdings rises.
◇ "Selling out because there isn't enough to sell"… AI-driven power grid supercycle
The market sees the cable industry as having entered a long boom phase. It is not just that cable product prices are rising; demand for power grids themselves is surging due to the explosive growth of the AI industry. AI data centers consume more power than general data centers, making large-scale transmission grid expansion essential.
Accordingly, high-voltage direct current (HVDC) cables, which can transmit large amounts of electricity over long distances without loss, are in short supply. In particular, only about six corporations worldwide can produce HVDC submarine cables, where demand is surging, including LS Cable & System at home and Nexans, Prysmian, and NKT in Europe. With a supplier's market taking shape, cable makers are selectively winning high-margin projects.
Brokerages expect this year's sales at LS Cable & System and Taihan Cable & Solution, the two biggest cable companies in Korea, to each surpass an all-time record high of 7 trillion won and 3.5 trillion won. Their order books are also filling up. As of the third quarter, LS Cable & System's order backlog stood at 6.2 trillion won (separate basis), up by more than 1 trillion won from a year earlier, while Taihan Cable & Solution also hit a record high at 3.4175 trillion won.
Korean cable makers have launched aggressive facility investments to seize this opportunity. Because cables are bulky and heavy, transportation costs are high, making it essential to secure local production bases. LS Cable & System recently completed its Donghae Plant 5, quadrupling its HVDC cable production capacity, and is building a 1 trillion won submarine cable plant (LS Greenlink) in Virginia, United States.
An LS Cable & System official said, "When shipping cables from Korea to Europe, freight and insurance account for more than 20% of the product price," and added, "Once the U.S. plant is completed, we can drastically cut logistics costs when targeting not only North America but also the European market, improving margins."
Taihan Cable & Solution, after completing its Submarine Cable Plant 1 in Dangjin, South Chungcheong, is pushing to build a second submarine plant with a goal of starting operations in 2027. This plant will produce HVDC submarine cables and high-voltage alternating current (HVAC) cables. It is also expanding high-voltage cable plant facilities at its Vietnam manufacturing subsidiary and upgrading facilities at its South Africa production base.