By Rosalyn Retkwa
A year ago in December, Encore Wire announced that it was
about to build its first aluminum wire manufacturing plant as part of its
McKinney, Texas complex.
That 202,000-square-foot facility is now “semi-operational”
and will be fully operational by the second quarter of this year, says vice
president and CFO Frank J. Bilban. “The building itself was completed in the
May-June time frame,” he said.
Since then, Encore has been “buying the latest and greatest
equipment we can find,” Bilban added.
Since Encore is debt-free, it was able to fund the $40
million project on an all-cash basis. Bilban said the company didn’t see the
point of leaving its cash in the bank earning “almost zero interest,” when it could
use that money to expand into aluminum wire as a complement to its existing
business in copper wire.
“As a company…we believe copper is a better conductor,
period,” Bilban said. But more and more of his customers were asking for aluminum
wire because their contractor customers were asking for it. There wasn’t much
interest in substituting aluminum for copper before 2004, when copper was
selling for less than a dollar a pound. Now with copper holding in the $3 to $4
per pound range for the last six or seven years, “there’s a new dynamic in the
spread between copper and aluminum,” he noted.
As of Jan. 30, copper was at $3.73 per pound versus 92 cents
a pound for aluminum. Aluminum is in serious oversupply, and a number of market
analysts don’t see any
reason why its price should rise anytime soon.
But the price differential wasn’t the only consideration—obviously
prices can change over time. With aluminum wire, poor supply from a third party
was a serious issue, according to Bilban.
“For a long time, Encore was getting a little bit of
aluminum wire from another supplier, who did not make copper wire, to fill in
our orders, and their delivery was pretty sad,” he said. “[Delivery of aluminum
wire] has long lead times, and I’m not sure why. We thought they were just slow
rolling our orders until we investigated and found they were treating our
distribution customers in the same slow fashion, which is pretty much accepted
in the aluminum wire industry.”
Encore plans on delivering its aluminum wire “coast to coast
in one to two weeks,” just like its copper wire, Bilban explained.
There’s another reason why Encore felt it should offer aluminum
wire—to get free freight, something Bilban believes everybody wants. The order
has to be a minimum of 5,000 pounds to get free freight. Encore believes it
will get more orders for its copper wire, if it can increase the total weight
of the shipment by adding aluminum wire for those who want it.
Bilban said Encore knows it has lost some copper wire orders
because it couldn’t supply some of its customers with aluminum wire as part of
the same order. The company thinks it will be able to recoup some of those lost
orders while gaining some incremental copper wire business.
“It’s not our intention to push aluminum, but if you want
it, we’ll have it,” Bilban said.
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