Daily file photo by Gary Lloyd|
Caster Greg Stricklin takes a sample of molten copper at the casting unit of the Wolverine plant.
Copper prices, free trade contributed to plant closing
By Eric Fleischauer
Copper prices and NAFTA were major factors in the demise of Decatur’s Wolverine Tube plant.
On Tuesday, Wolverine announced it would close its 61-year-old plant. On Jan. 6, 500 people will lose their jobs.
The Decatur plant’s main products in recent years have been water pipe, used for plumbing; and smooth industrial tube, used in refrigerators, air conditioners and other equipment that needs copper’s heat-transfer properties.
In recent years, the market for copper tube in plumbing applications has plummeted. Copper prices have increased dramatically — largely due to increased demand in China — and copper mining has not kept up with the demand.
Officials were worried in late 2005 when copper had risen to $1.70 per pound. By late 2006, it was $3.54 per pound.
The escalating price caused two problems for Wolverine. By the time it filled orders, the agreed upon price was unprofitable because the price Wolverine had to pay for copper had increased. Wolverine solved this problem by adding a “metal charge” to orders that reflected copper prices at the time of shipment.
On large orders it would purchase copper futures so it could establish a firm price not vulnerable to copper price fluctuations.
These techniques successfully passed on the cost of copper to Wolverine customers, which of course resulted in a higher price.
Alternatives to copper
That is where the more serious problem — a problem that had much to do with the Decatur plant’s closure — came in.
As copper plumbing prices increased, customers began searching for alternatives. For many years the main alternative available was CPVC pipe. Because of its rigidity and its inability to expand and contract, especially in the event of a freeze, it was not a major competitive threat.
Then came tubing made of pex, short for cross-linked polyethylene.
“The pex had begun to make a few inroads, and it just took off when copper prices jumped sky high,” said Knox Biles, operations manager of D.B. Davis Supply in Decatur, a plumbing supplier.
Not only is pex tube cheaper than copper tube; for many applications it is better. It is a flexible pipe, so it requires fewer fittings. It does not corrode. It withstands high temperatures, and can withstand freezing.
“It’s a lot easier to install than copper, and it’s also cheaper material. From what I see so far, the only downside to pex is what’s happening to places like Wolverine,” Biles said. “If you buy a new house in Decatur today, chances are that’s what will be in it.”
The rise in copper prices, combined with improvements in pex, led to a rapid transition from copper piping in new-house construction.
“I haven’t ordered a full shipment of copper in close to two years now,” said Biles. “Everybody’s going to pex.”
Some of Wolverine’s competitors, such as Mexico-based Cambridge-Lee Industries, embraced the change and added pex to its product line. Wolverine did not.
Wolverine officials did not return calls for this article.
As copper prices rose, so did natural gas prices. Some copper plants use electric furnaces, but Wolverine uses natural gas. That, too, pushed up the price of its product, increasing customers’ interest in alternative products.
In recent years, the other main product manufactured in Decatur was smooth industrial tube, used primarily in refrigerators and air conditioning units.
Smooth tube has a low profit margin and, because the manufacturing process is simple compared to other types of copper tube, faced stiff global competition.
Like most U.S.-made commodities, smooth tube was hit hard by the North American Free Trade Agreement and increased trade with China.
Industrias Unidas S.A. de C.V., one of Mexico’s largest conglomerates, saw the commodity pricing and recognized the advantage that its access to cheap labor provided. In 1993, after NAFTA was formalized and shortly before its effective date, it acquired Cambridge-Lee. Much of its commodity tube continues to be made in Mexico and exported to the United States, through Cambridge-Lee’s distribution network and with Cambridge-Lee’s label.
When the conglomerate purchased another U.S. plant in 1996, an official explained the strategy: “We thought it was very important to have a manufacturing plant in the U.S. because many plumbers want American made products.”
Wolverine made some efforts to respond to the challenges posed by global competition.
To benefit from China’s burgeoning market — and to take advantage of its cheap labor — Wolverine opened a plant in Shanghai. It also opened plants in Mexico and Portugal.
These efforts hurt, rather than helped, the Decatur plant. Competition that was external became internal. Other Wolverine plants, fueled by cheap labor and minimal environmental restrictions, could make the same products at lower cost.
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