Cable firms get flexible

Cable firms seize energy market opportunities, expanding production and launching new products

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By  Nicholas Wilson Published  June 6, 2006

Cables|~||~||~|The commodities boom that is heating up the energy sector is proving to be a double-edged sword for the cables industry: Oil and gas sales are driving demand for its products, but the sector’s raw materials costs are rocketing too.

Cable firms have quickly risen to the challenges, launching massive expansion programmes and new products that use less materials or different ones than those used in traditional cable technology.

The seeds for today’s growth were sown a decade ago, when oil prices hit US $10 a barrel, production slumped and people left the industry in droves. The result was chronic under investment and a huge gap in global refinery capacity, which could not keep pace with demand when China swooped onto the world market looking for commodities, especially oil.
That demand spurt, combined with hurricane damage in the Gulf of Mexico and geopolitical tension in producer countries, has spurred oil prices to a record high, making the hydrocarbon industry scramble to boost production, creating a bonanza for cables products firms.

Parag Ashar, area manager of Oman-based Shaksy International, the exclusive distributor of Amercable products in the Middle East, said: “In the past two years we have doubled our revenue from cables that we sell to oil and gas companies, and we expect revenue to increase even more this year.”

And the boom looks set to continue. Few energy sector analysts think prices will drop in the short-term, and many think they may rise, higher—much higher. Goldman Sachs investment bank has projected prices as high as $105 per barrel if there are no major supply interruptions. But, “If we truly did have a major outage in a major exporting country then $105 will prove conservative,” Arjun Murti, managing director at Goldman Sachs said at the end of May.

Mike Smith, regional vice president of Anixter wire and cables manufacturer, said: “With the price of oil at an all-time high, investments for the long-term future are encouraging. Market conditions in the industrial sectors remain strong. The opportunities are here in the Middle East and Anixter is committed and investing heavily in the region.”
The Middle East is taking the lion’s share of global investment, not only because it is the heart of the world hydrocarbon production, but also because the centre of gravity of petrochemical production is shifting to the region from the traditional sites in Europe and the United States.
Jim Graham, global oil and gas director of Panduit, which makes wiring and communications products, said: “The Middle East Market is the biggest project market in the world—Qatar alone is investing $50 billion in the next few years in oil and gas.”

However, oil is not the only commodity that China is sucking in, it is also consuming vast amounts of copper and nickel—raw materials in many cable products—driving their prices to record highs too. Commodity market watchers say the raw materials price rise is the longest rally in five decades, and it looks set to keep soaring in the short term.

The price of nickel, which is used to coat stainless steel, reached an all-time high of $22,250 per tonne in May, and some analysts say it will rise another 25% in the next two months. To cope with the price shock, Chinese stainless steel companies are already cutting back production, which will pile even more pressure on global steel prices.
Copper also smashed a historical record last month, briefly hitting $8,500 per tonne.

Shaksy’s Ashar said: “Copper prices are worrying us. Soaring copper prices may hurt business if companies delay projects.”
The cables companies are showing great flexibility and are responding to the raw commodities crisis with new products to offset some of the raw materials costs.

Anixter’s Smith said: “Copper prices, whether they remain at current levels or significantly drop will have an impact on project costs. As a key distributor of copper products, our focus is to maximise our cost structure and minimise any negative impact. Having the ability to remain flexible in our approach and source products globally is one good reason for Anixter’s continual success across the world.”

Working with wire and cables maker, Beldon, Anixter is set to launch Field Bus Technology, which acts as a hub, reducing the amount of cable that would otherwise be needed. Anixter will take this new development to market around the time of the Adipec exhibition this November, Smith said. The company is also reducing its copper use by switching from copper to fibre-optic cable. “Fibre-optic cabling is becoming more and more common in the industry, and there are many spin offs from this including fire protection [properties],” he said.

In the drive to reduce raw materials, the innovation that is changing stainless steel-containing products is also producing spin offs that address other energy industry problems that the boom has thrown up.

Eighteen months ago, soon after oil prices started to soar, Panduit introduced a new stainless steel tie to replace existing cable cleats used for fixing cables to ladder racks. Graham said: “Having no nuts and bolts means less tools to use and therefore easier conveyance. It saves time—taking only 30 seconds to install compared to about 10 minutes for the conventional cable cleat—and also makes a significant weight saving, as the steel tie is far lighter, which is of paramount importance important on offshore rigs. All of this culminates in massive savings in installation time, weight and, of course, product costs.”

The product comes at a time when the energy industry is desperately short of skilled staff—a result of last decade’s price slump—and is matched in labour saving by other recent Panduit products, such as the automatic Metal Marker Plate system and EasyMark 3:1 for Cable Identification.

The Metal Marker Plate machine uses MS Windows-based software to emboss characters onto metal identification plates that are predominantly used to identify cables. “We have seen a definite upturn in enquiries for this type of product, especially in the Middle East and Former Soviet Union,” Graham said. The system significantly reduces the time taken by the traditional manually operated methods. Panduit is also offering a pre-prepared service that will allow contractors to email spreadsheets that can be loaded on the system, reducing time and reducing cost, he said.

The new cable identification software EasyMark allows users to view a selection of labels in accordance with the application, they can then choose the label and simply input the diameter of the cable core, and the programme automatically chooses the correct part number needed, Graham said.

Two years ago, Shaksy, which says it is one of the region’s largest stockist for all types of electrical, instrumentation, mechanical and industrial items, also launched a new product that cuts down on installation time, weight and stainless steel usage—the rubber-like crash impact resistance cable (CIR). The product does not have the metal-clad armouring of conventional cables, which is normally made of stainless steel. Ashar said: “CIR saves costs, is more flexible—it can bend like rubber—and much lighter than metal clad armour. Also the costs of clamps in metal clad is higher and its installation time is greater than CIR.”

Runaway prices of raw materials are not the only factor troubling the cables industry—the high quality product manufacturers say they are facing a wave of low quality, cheaper products from countries, including the new economic giant, China.
Panduit’s Graham said: “Our biggest issue is the influx of low-cost, poor-quality products that don’t conform to the majority of International standards such as UL, CSA and ISO.”
It is essential that vendors push design engineers, and demand higher standards and quality products, instead of allowing purchasing departments to buy ‘fit-for-purpose’ products. This is false economy and we are constantly asked to replace these poor quality products after the construction phase with Panduit products, he said.

“Recently I have been called to facilities where cables are falling off racks due to these poor-quality cable ties and fixings that could not withstand the heat or were not strong enough to hold the weight of the cables. This is more than just a product problem, it also represents a serious health and safety issue,” Graham said.

Graham says the flow of cheap products puts more pressure on another trend in the industry—forcing contractors to cut costs. “Contractors are being squeezed on costs and have been for a number of years, and this in turn has a knock on effect for vendors. We get squeezed all the time and have to try and cut costs while still maintaining the highest quality possible.”

The Chinese newcomers threatening market share of established companies in the region is one side of China’s emerging global presence. Its other side—sizzling economic growth—looks set to keep heating up energy markets, including oil, and boosting the demand for cables.
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