Spotlight: The obstacles for fiber, cable manufacturers in LatAm

The demand for structured cables and fiber optics, which was already high, has grown exponentially with the rapid digital shift during the pandemic, but that does not mean that the main producers of these products are in a comfortable position.

These companies face a variety of challenges, including the lack of different materials for manufacturing processes, ranging from plastics to electronic parts, the depreciation of local currencies against the dollar and high freight costs, in addition to stoppages caused by social friction and the problems caused by the health crisis itself.

“We've been feeling the shortage of plastic materials from the US since last year. In our talks with local suppliers through our US subsidiary, the estimate is that this situation will only start to stabilize in September,” Helio Durigan, VP of technology and innovation at Furukawa Electric LatAm, told BNamericas.

The plastics and resins shortages that Durigan mentioned were prompted by winter storms and a particularly active hurricane season in the Gulf of Mexico, such as Hurricane Laura in September 2020, which hit a number of petrochemical complexes and resin reactors, leading to supply problems and higher costs of prices of polyethylene (PE) and polypropylene (PP).

Plastics and resins, used by Furukawa both for coating some products and for packaging, are not the only problem. Durigan also says prices for chips and electronic components, used in some Furukawa product lines, have also risen by more than 40%.

For some component purchase orders, Furukawa is having to wait 44 weeks for products to be delivered from suppliers – compared to 17 weeks in 2019.

CURRENCY AND STOPPAGES

Another problem facing Furukawa, which has plants in four Latin American countries (Brazil, Argentina, Colombia and Mexico), is the depreciation of local currencies, especially Brazil's real, which has impacted the cost of importing components for local manufacture.

In Colombia, Furukawa’s operations have been halted by recent blockades and a national strike, affecting exports to neighboring countries, and to Mexico and the US.

Meanwhile in Argentina, an extra hurdle for the firm is stricter rules for importing components, although the domestic market continues to see high activity, said the executive.

Durigan also mentions the drop in the price of fiber on the world market, caused by excess production in Chinese factories over the past two years due to the accelerated rollout of fiber in the Asian nation. 

Due to the pandemic, many plants have been stuck with excess output, bringing global prices down.

According to the executive, a "massive" fiber tender in China, involving the three main local operators – China Unicom, China Telecom, and China Mobile – scheduled for next month, should slightly rebalance prices.

According to British consultancy CRU, the world should have annual demand of 600mn kilometers of fiber this year. China alone would be responsible for 290mn kilometers, but that would be a drop compared to previous Chinese demand of around 55% in 2018-2019.

In the US, Furukawa has suffered from high turnover of truck drivers responsible for deliveries. Freight costs have also risen in Latin America, according to Durigan, especially for sea freight.

PRODUCTION

Despite the problems, Durigan says Furukawa has been able to meet customer demands, albeit with certain renegotiations on delivery terms and prices.

The company forecasts that its revenue will grow 8-10% year-on-year in Latin America this year. The exact rate of growth will depend on FX effects.

To cope with the high demand, Furukawa is investing US$14mn in its three factories in the region this year. The main facility, which covers the group's major product lines, is in Curitiba, Brazil and it is expected to receive around US$10mn of the total. The remainder will be divided between the plants in Argentina and Colombia.

Furukawa also has a plant in Mexicali, Mexico, but the maquiladora produces automotive and electronic systems and mainly serves the US.

According to Durigan, Furukawa is studying the possibility of opening a factory to supply the Mexican cable and fiber market, which is currently served mostly by exports from Colombia. With the recent disruptions in Colombia, the company has been making exports to Mexico from Brazil and Argentina at a higher cost.

With the exception of the Brazilian plant, which makes practically all Furukawa products and is more "flexible", all of the other plants have more specific lines and products.

Furukawa expects to end 2021 with annual output of 12mn kilometers of fiber in Latin America, which would be 20% more than in 2020.

PRYSMIAN

Another major producer of fiber optic cables, Italy's Prysmian reports similar problems to Furukawa.

Prysmian's VP of telecom for Latin America, Marcelo Andrade, says the company has seen certain "stress" in terms of supply of materials, which has increased prices.

“Some world markets are growing more, so there’s demand from suppliers for price increases,” Andrade said during the InovaTIC online event on the Brazilian telecoms market on Wednesday.

“Our plant is at full capacity, with pressure on the components and materials for the manufacture of fiber and cables. But I'm more concerned about the increase in input prices. But so far, we’ve been able to keep to our commitments [with customers],” the executive said.

Andrade says that the regional fiber market has grown by more than 10% annually and last year demand "increased a lot," with the need for investment in fixed infrastructure by telecom operators.

One of Prysmian's main projects at the moment is the supply of fiber for a Brazilian government fiber-optic project in the Amazon region, led by the government's national research network (RNP).

Delivery of about 770km of sub-fluvial cable for the project, plus spare parts for possible maintenance, is scheduled for September, Andrade said. Prysmian will not be responsible for the installation, but only for the supply of the materials.

The Italian group expanded its Brazil plant in July 2019 with an investment of 150mn reais (US$29.6mn). With that expansion, Prysmian says it increased the plant’s capacity by 25%, or by 500,000km of cables, to output of 2.5mn kilometers a year.

The company also has a plant in Durango in Mexico and is also a supplier for the Fiber Optica Austral (FOA) submarine project in Chile.