Opportunities and Challenges Confronting China’s Copper Processing Industry



Opportunities and Challenges Confronting China’s Copper Processing Industry

Against the macro background of gradually recovering global economy, China’s copper processing industry is facing good opportunities: External environment continues to optimize, key enterprises show improvement in profit earning condition.

In 2013 the output of copper processing products was 14.987 million tonnes, up by 25.20% on Y-o-Y basis. In 2014, the output of China’s copper products reached 17.8315 million tonnes, up by 13.32% on Y-o-Y basis.

Following the launching of Henan Jinlong company’s 60000 t/a precision copper tube projects in Alabama in the Unites States on May 28, 2014, on September 15 Jinlong acquired 71% equity of Japanese company Shanghai Nikko Copper Industry Company, signaling that China’s copper processing industry made another step forward on the road of international cooperation. Copper processing giants including Hailiang Co., Ltd and Jinlong Copper Tube Group have set up manufacture enterprises in Vietnam, Mexico, and the United States, acquisition and restructuring will become new development trend.

Nonetheless, we must take notice that there are still many problems in China’s copper processing industry.

In the recent several years, 17 newly constructed copper sheet and strip product projects, which aimed to replace import, had a total investment of over 20 billion yuan, total designed capacity was 1.27 million tonnes, actual output in 2013 was about 435,000 tonnes, but import copper strip dropped from 146,600 tonnes in 2011 to 127,300 tonnes in 2013, down by 19300 tonnes in three years, in other words down by less than 7000 tonnes each year on average.

Electrical copper rod is the variety with the highest output in China’s copper processing products, in the recent several years it has exceeded 50% in the total output of copper processing products. By 2015, the newly added production capacity of China’s imported continuous casting and rolling electrical copper rod production line will top 6 million tonnes, equipment load rate is around 70%.

Copper tube is the most competitive sector in China’s copper processing industry, in 2013 the total net export volume is 155,000 tonnes (export 170,000 tonnes, import 14,800 tonnes). Between January and June in 2014 the net export was 87,000 tonnes, basically on par with 2013, slightly up by 1.85% on Y-o-Y basis. Because the domestic market is basically saturated, export was obstructed, capacity utilization rate is not high.

As China’s copper processing technology makes progress, and its competitiveness continued to improve, in the world of today when strength decides everything, in order to improve own economic strength, and protect own country’s enterprises, all countries worldwide one after another adopted various measures to implement trade protection, anti-dumping investigation became key means of trade protection to dispel outside competition. Since October 2009 when the United States began to carry out “anti-dumping” against Chinese copper tube, China’s copper tube industry has become heavy disaster zone of anti-dumping for many consecutive years. In 2013 alone there were a number of anti-dumping investigations and anti-subsidy investigations against Chinese copper tube in Brazil, Canada and other countries. On September 2, 2014, Canada decided to kick off anti-dumping re-investigation against copper tube originally manufactured in China or imported from China, and kicked off anti-subsidy re-investigation against copper tube originally manufactured in China or imported from China.

Owing to large scale anti-dumping investigation, export was obstructed, the international market shrank. Foreign countries set up very high tax rate on Chinese enterprises involved in anti-dumping investigation, even if some cases could win the lawsuit, due to long anti-dumping cycle, during this period the high amount temporary anti-dumping tariff imposed on Chinese enterprises would give too heavy burden to Chinese enterprise, cost would rise significantly, so as to eliminate the advantage in competing against local enterprises, resulting in decline in sales volume or even total withdrawal from such regional market.

Copper tube encountered massive anti-dumping, copper processing enterprises urgently need to review their globalized competition strategy. From the perspective of strategy, enterprises mainly have industrial competition in two forms: multinational localized industrial competition and enterprise globalized industrial competition. From the perspective of attribute and competition, copper processing products is a kind of globalized industry. Globalized industry needs globalized competition strategy that can match it. Domestic copper processing enterprises in the past always relied on “scale economy”, “comparative advantage” as their own “competition advantage”, adopted low prices to receive order for exporting products to multinational corporations, this is a kind of very traditional internationalized competition model. Whereas anti-dumping and non tariff trade barrier are exactly biggest killers of such model.

To develop from domestic market to international market, it needs not merely renewal of concept, what’s more important is enterprises must have globalized strategy, and they must develop a kind of internationalized management ability. Innovation of productivity led to new models in international competition, for China’s copper processing industry to transcend traditional international model, it must create uniquely different strategy. Globalized competition has entered the stage of innovation guidance, new globalization strategy of Chinese enterprises must expand self value chain to international sales channel, internationalized marketing means, look for raw material sources from different country origins and ultimately establish multinational product system etc. Anti-dumping is not targeted at enterprises, instead it is targeted at place of origin, the existing manufacture layout of China’s advantageous copper processing enterprises is still not competent enough to shoulder the historical mission of copper processing internationalization and globalization. Walking out is necessary for survival and development.

Copper processing is a traditional industry, while copper price remained high, prices of other materials steadily declined, resulting in shrinking fields for copper product application: Through replacement of copper cables with optical fiber cables, the demand of internet main network for copper cable decreased sharply; saving copper with aluminum, replacing copper with titanium lead to copper’s demoted standing in traditional application fields such as household electrical appliance, electric power, and marine engineering. Emerging industries such as automobile and solar energy have limited boosting effect on copper product demand; copper processing application lacks new growth points.After long time rapid development, in recent years China’s copper processing enterprises experienced rising capacity surplus degree index, homogenized competition intensified, resulting in low economic performance. In the first half of 2014, although China’s copper processing product enterprises maintained high-speed growth in terms of production, output rose significantly, yet owing to fluctuation in raw material prices and deceasing processing fee, in the first half of the year, 1346 copper rolling processing enterprises recorded 489.757 billion yuan of income from main business, the profit was only 11.085 billion yuan, profit rate was only 2.26%, for individual copper products it’s lower than 1%. Many enterprises were struggling on the brink of profit and loss, which aggravated the difficulty of transition and upgrading for the entire industry, and extended transition cycle.

In front of the difficulties faced by the copper processing industry, adjustment of industrial structure brooks no delay. However, when it comes to specific enterprises, there is still worry on how to proceed. The transition and upgrading of copper processing industry is mainly reflected in the following several aspects:

Firstly, intensify efforts in resource integration, actively push forward enterprise restructuring.In 2013, output of copper products was 14.987 million tonnes, capacity utilization rate was below 80%, individual varieties were lower than 75%, capacity surplus was already very obvious, but the investment in copper rolling processing industry still maintained high fever. In 2013 fixed asset investment in rolling processing was 52.567 billion yuan, up by 35.44% on Y-o-Y basis. Between January and July in 2014 there were 370 construction projects in copper rolling processing fixed asset investment, investment amount was 31.854 billion yuan, up by 11.93% on Y-o-Y basis. Under the condition of massive capital entry despite obvious capacity surplus, from the perspective of optimizing industrial structure and standardizing competition order, M&A and restructuring will become a trend. Through M&A and restructuring, enterprises can improve its strength in all aspects, and enhance competitiveness to cope with the needs of industry development and adapt to changes in environment.

Instead of newly constructing or newly launching copper processing projects, it’s better to restructure existing enterprises. According to marketized operation, adopting enterprise as main body, government as guidance principle, quicken the pace of M&A and restructuring for copper processing enterprises. Give priority to supporting large advantageous copper processing enterprises to carry out cross-region, cross-ownership M&A and restructuring. Actively support M&A and restructuring by regional advantageous copper processing enterprises, significantly reduce the number of copper processing enterprises, promote regional copper processing enterprises to speed up industry upgrading, continually improve development standard, develop 20 enterprise groups with relatively strong competitiveness. Consolidate construction accomplishments of copper processing base in Ningbo, Wuhu, Luoyang etc, guide construction of emerging copper processing infrastructure in Yingtan, Tongling, Donging, and Xinxiang.

Although today China is the world’s biggest copper processing manufacturing country, in 2013 its output of copper products accounted for 63% of the world total, however it still is not a copper processing power. There are few premium copper processing enterprises, SME enterprises account for high percentage. M&A and restructuring is a resource integration process, whereas enterprises with only output but without technology, brand, and superior management have no appeal in resource integration, only those enterprises with technological advantages, and healthy management possess value for M&A.

When the economy is making the transition to move from high growth to mid to low speed growth, industry must shift from pursuit of scale to pursuit of quality. If enterprises lack market competitiveness, they will have to face the problem of survival, instead of development.Secondly, improve self competitiveness.

For the copper processing industry to gain continual development, enterprises must improve self competitiveness by departing from six aspects of product, market, service, technology, talent, and system.

Product competition includes price competition and non price competition. Wherein, price competition is the most direct, but once it changes to non price competition, then it may lead to loss in the entire industry. Because China has a way too big market, huge population, it is totally not realistic to rely on one’s own low cost and high output model to drive smaller competitors to desperate predicament, so as to help them become indisputable overlord. The reason is very simple, the capacity increase in copper processing in the recent years has far exceeded demand growth, when facing falling processing fee, everyone chose to further increase production, hoping to drag down unit production cost in this way. However, as capacity expanded, for the sake of sales, prices would drop more, resulting in the quagmire of loss for the whole industry. Therefore, for copper processing enterprises, the emphasis of price competition should not be placed on price cut, instead it must be placed on reducing cost, the attention should not be placed on apparent cost, instead it must be placed on complete cost, it is necessary to pinpoint the breakthrough point, lower direct expense and indirect expense. Lowering direct expense means reducing consumption, reducing quality loss; lowering indirect expense means reducing enterprise’s financial cost, operation cost, logistics cost etc.

Competition should be in multiple dimensions, non price competition is mainly competition in product performance and quality, which is mainly reflected on two aspects of staggered product and differentiated product. Staggered product includes high-end product and seam product, copper processing enterprises must try hard to improve product performance, as mentioned above, the newly launched 1,270,000 t/a high precision copper sheet & strip product in China should find ways to give qualitative leap to product performance, so as to replace the annual 200000 tonnes of import copper strip and foil quantity, boost the development of domestic high-end products. Seam product refers to products that no other enterprises are able to make, enterprises must improve innovation ability and market discovery ability to fill market voids. Differentiated product means to manufacture products more conforming to customer needs based on users’ different usages, this also requires enterprises to promptly understand changes of needs in copper processing industry and downstream enterprises, even if when developing new products, ensure unique product, superior quality, and new innovations.

Copper processing industry must, through market segmentation, choose market segments and market levels that have the highest appeal to the enterprise and to which it can provide effective service, and regard them as their target market.

For domestic market, copper processing enterprises must pay attention to downstream industry movements, such as railway transport, high speed railway, metro, power industry (clean energy, nuclear power, hydraulic power, wind power, photovoltaic battery), and automobile, all of them should be focus of attention for copper products manufacturers. It is also necessary to study users of users, in order to look for R&D direction for next step. Enterprises must gradually develop corresponding new products, learn about market new movements. Focusing on improving variety quality and performance, quicken the pace to develop high-strength high conductivity lead wire framework materials, high prevision special-shaped copper alloy products, ultra fine capillary, high speed train and railway electrification high performance dedicated copper product, high purity oxygen free copper, lead-free free-cutting copper alloy, aluminum-clad copper (copper-clad steel) compound materials, new energy-use high performance copper alloy materials such as electrode-use material for lithium battery and other functional materials, meet the needs of strategic emerging industry and national key projects, develop a number of copper products processing industry production bases with rational layout, distinct features, and concentrated industry.

Copper processing enterprises must have their own core technologies, it must understand development changes in relevant technology frontiers, continually unfold technology (technique, equipment) development, product development and market development. Maintaining investment into R&D in appropriate percentage is a key means to form high technology barrier and stable market occupation.

Thirdly, expand application of copper products.

Speed up application of copper products in civilian fields, reflect the achievements of copper industry development on improving people’s living standard and quality, let compatriots share development achievements of copper industry, improve residents’ living quality. Push forward safe water engineering, construction-use copper products, daily necessities etc, expand the application market of copper products.