Annual Review of China’s Copper Tube Industry in 2015 and Future Forecast



Annual Review of China’s Copper Tube Industry in 2015 and Future Forecast

In 2015, production of China’s copper tube industry suffered from the im pact of sluggish downstream market consumption, the operating rate of copper tube production dropped, industry operation and development presented overall decline com pared to the previous year. According to statistical data of Antaike, whole year copper tube capacity grew slightly by l.96% compared to the previous year, reaching 3.126 million tonnes, in which 60,000 tonnes are newly added capacity; whole-year copper tube output reached 2.255 million tonnes, down by 14.78% com pared to the previous year, apparent co nsumption reached 2.10 58 m illion tonnes, down by 15.24% compared to the previous year, whole-y ear total import/export trade volu me is estim ated to reach 254,100 tonnes, down by 12.51% than the previous year.

Table 1 China’s capacity and output of copper tube products 2013-2015 Unit: 10k tonnes

In 2015 Antaike conducted annual follow-up survey on about 30 domestic copper tube manufacturers through a variety of form s, total capacity of enterprises being surveyed approached 2 m illion tonnes, topping 60% of China’s total copper tube capacity. Judging from survey results, in 2015 the copper tube processing industry suffered impact from domestic and overseas economic downward pressure, dem and of terminal products for copper tube consumption is sluggish, in particular high inventory of the air conditioner industry resulted in fast shrinking orders of copper tube, the operating rate of the copper tube processing enterprises fell sharply; coupled with mounting pressure of bank credit on enterprises, production and operation cost remained high, the number of closed down enterprises increased. Most enterprises are on the brink of loss, high level of “homogenization” of copper tube industry has kicked of f re-ad justment am id grim m arket environment; survival of the f ittest, M&A and restructuring now represent the general trend.

Judging from operating rate, it presents a fluctuation m odel of high level at first, followed by low level, ending in moderate level in terms of monthly copp er tube operating rate across the whole year, lack of robustness in peak season and added weakness in off season becomes the dominating keynote in copper tube processing. This is mainly caused by weakened market dem and for copper tube due to continual high inventory and sluggish sales of downstream air conditioner ente rprises. In 2015, newly added copper tube orders shrank obviously, throughout the whole year average operating rate of copper tube enterprises dropped sharply to 67.73%, down by 13.98% compared to the previous year, operating rate of the industry production in only 3 months throughout the whole year topped 80%, the highest is 88.33% in May, down by 4.17% than the highest-record m onth in the previous year, in the rem aining tim e it bas ically stayed ininadequate operating status. In 2015, China’s medium and small sized copper tube enterprises not only ex perienced strained cash flow, their product market share was also relatively low, competition p ressure of the industry w as particularly prominent, the operating rate of production could be kept between 60%-80% in pr oduction peak season months between March and May, in off season it was basically kept between 40%-50%, som e enterprises stayed in closedown or semiclosedown condition due to strained cash flow, from the trend chart of operating rate for Chinese copper tube ente rprises in 2015, it can be clearly seen that whole-year cop per tube Y-o-Y operating rate reached -13.98% com pared to the previous year, in which August reached the lowest at -22.95%, after September the margin gradually narrowed, by December it for the first time recorded Y-o-Y growth of 0.88 percentage points.

In 2015, Chinese economy confronted grim and complex changes in interna l a nd externa l situations, with m ounting downwa rd pressure in economic development, and weak growth in export, investment, and consum ption. Against such macro background, shrinking and sluggish market of real esta te a nd ref rigeration-related household electrical appliances, which are terminals of copper tube consum ption, directly resulted in sharp decrease in copper tube processing orders, meanwhile copper tube enterprises also have to face the p ressure risk for enterprise survival caused by bank credit recovery amid sluggish market. For many years in the past, the fast capacity expansion and high level of “hom ogenization” of products in the copper tube manufacture industry remained free of trou ble when th e m arket en vironment was favorable, but since the second half of 2014, market supply and de mand environment worsened, in 2015 m arket and capital pressure suddenly increased. In the future, the issue of enterprise survival will become param ount problem facing business operators, conditions for “reshuffling” and restructu ring in the copper tube processing industry has matured. In November 2015, Zhejiang Hailiang Co., Ltd published public notice to announce that the company pl anned to, at the price of 11.27 yuan/share, issue 200 mill ion shares to Jinlong Co., Ltd, and paid l.6 billion yuan cash to buy l00% equity of Jinlong Co., Ltd, for a consideration of over 3.25 billion yuan to acquire 100% equity of Henan Jinlong Co., Ltd, a “giant aircraft carrier” in the copper tube industry w as born, so to speak, the new company’s capacity can reach 800,000 tonnes, annual output can reach 700,000 tonnes, domestic market share will reach around 70%, international m arket sh are will reach around 50%. The alliance between two giants of Jinlong and Hailiang s ignaled that ‘s urvival of the f ittest’, M&A, and res tructuring in th e copper tube industry under the “New Nor mal”will con tinue, “cash is king” is exactly the enduring principle for enterprise survival.

Although this restructuri ng fell through in the end, M&A and restructur ing still represent the general trend.

In 2015, Antaike followed up on ten large domestic copper tube manufacturers, according to sta tistics, com bined capacity of ten la rge copper tube m anufacturers in 2015 is 1.501 million tonnes, up by 3.16% on Y-o-Y basis; combined output is l.0266 million tonnes, down by 8.24% on Y-o-Y basis. Total capacity of ten enterprises reaches 46.67% of nationwide copper tube capacity, their total output accounts for 45.53% of nationwide copper tube output.

Judging from developm ent of regional copper tube industry: W ith the relocation of regional economy, for traditional big copper tube manufacturing provinces, m arket changes and rising fin ancial cost restrained enterp rise development m omentum, in recent years a large batch of copper tube enterprises were relocated to Centra l an d W estern China an d emerging economic developed regions, so as to ease the plunging trend of enterprise profit caused by production cost pressure. According to statistics, in 2015 the capacity of China’s newly launched and under-contruction copper tube projects reached 187,000 tonnes, investment am ount reached 3.9862 billio nyuan, wherein 4 projects were launched in 2015, with 60,000 tonnes of newly launched capacity. A t a time when market dem and evidently slowed down, progress and and growth of copper tube investment projects slowed down significantly, some individual existing projects suspended construction.

Overall speaking, capacity surplus in copper tube industry is still prominent, industry concentration degree needs further improvement.

In 2015, China’s foreign trade of copper tube and copper tube accessory continued to maintain net export growth trend. In 2015, copper tube export reached 164,600 tonnes, down by 8.63% compared to the previous year, import volume reached 13400 tonnes, down by 1.7% compared to the previous year, in 2015 China’s copper tube net export volume is 151,200 tonnes, down by 10.13% com pared to the previous year; in 2015 export volum e of copper tube accessory reached 919 00 tonnes, down by 1.26% compared to the previous year, import volume reached 3297 tonnes, down by 12.12% compared to the previous year.

Judging from i mport/export regions, in 2015 the number of destination countries and regions of China’s copper tube export increased to 187, 20 more than the sam e period in th e previous year, but total trade volume declined. Southeast Asia region, United States, Japan, Saudi Arabia and Brazil becam e major destination countries of China’s copper tube export. According to statistics, in 2015 the top ten export destination countries combined to import 105,500 tonnes of copper tube from China, acco unting for 64.14% of China’s total copper tube export, export amount is USD 7 55 million, accounting for 63.45% of total export amount. In the aspect of copper tube import, South Korea, Japan and Germany a re still major source countries of China’s copper tube import.

According to statistics, f rom January to October in 2015, export of top ten import source coun tries of cop per tub e to China in total reached 10600 tonnes, accounting fo r 94.85% of China’s total import copper tube volume, the import amount is USD 96.19 million, accounting for 91% in total im port amount.

Among trade m ethods of China’s copper tube export, though total volume of copper tube export declined slightly, in export trade, feeding pro cessing trad e plays dom inant role and maintains continual growth trend. In 2015 copper tube for feeding processing trade method for export is about 127,400 tonnes, accounting for 77.45% in total export volum e, up by 9.20% compared to 2013, and up slightly by 0.31% com pared to 2014. General trade, processing supplied material and assembly trade are also key trade methods for China’s copper tube import/export, in 2015 their export volumes are 19,900 tonnes and 16,500 tonnes respectively, respectively up by 7.62% and down by 51.16% compared to the previous year. Althoguh the export base of free aid and gift m aterials between countries and by international organizations is small, their growth is the biggest, up by 135.36% compared to the previous yea r, in the future it will continue the trend of steady expansion.

Judging from copper t ube export provinces, Zhejiang, Shanghai, Guangdong, Jiangsu, and Henan consistently maintained top five ranking position in China’s copper tube export, Heilongjiang Province for the first tim e joined the top six, in 2015 six provinces and municipality com bined to export 144,200 tonnes of copper tube, down by 15.22% compared to same period in the previous year, wherein export volum es of Zhejiang Province, Shanghai, Henan Province declined than the previous year, respectively down by 8.46%, 25.94%, and 48.39%; Guangdong Province, and Zhejiang Province grew respectively by 5.49% and 41.32% compared to the previous year, as a new comer in the top six, Heilongjiang Province recorded 5 folds of growth compared to the previous year, its products were mainly exported to Russia, copper tube products were transited from other regions in China, export volume grew considerably. Judging from the decline incombined export volume of the top six, copper tube export percentage of other regions in China is gradually rising, radiation regions of export trade are becoming more extensive.

Overall speaking, although in 2015 China’s copper industry export suffered impact from slow international economic developm ent, export met certain resistance, national copper tube export m et certa in downward pressure, currently China’s copp er tube ind ustry on th e one hand are intensifying efforts to expand toward overseas emerging markets, and increase sales channels, on the other hand efforts are being m ade to im prove processing capacity of overseas Chinese copper tub e enterprises, so as to ease export pressure.

Considering the overall development of China’s copper tube in dustry in 2015, due to unfavorable impact of domestic market environment, production output of copper tube industry declined, but capacity still grows slightly due to delayed effect of investm ent; foreign export trade maintains growth momentum, but the growth margin shrank.

In 2015, China’s economic developm ent entered m edium speed growth, “stabilizing growth” b ecomes the primary task for government work in 2015. The regulation of macro economy and shift in economic structure gradually changed past reliance o n the real estate indu stry. Th is dir ectly lowered the market cap acity of co pper tube consum ption groups such as air conditioner household electrical appliances which depends on real estate industry, resultin g in high inventory of massive air conditioner household electrical appliance products and created huge impact on the developm ent of copper tube industry.

According to relevant industry statistics, in 2015 China’s air conditioner output is expected to re ach 1 55 m illion sets, in 2015 China’s direct newly added air conditioner consumption is about 20 m illion s ets, norm al updating of family usage is abou t l5 m illion sets, coupled with stim ulated consumption of about 20 million sets from “t rade-in”, “household electrical appliance going to the countryside”and “Grand Sale” short-term policies from government and enterpri ses, the export trade volume is about 43 million sets, in 2015 China’s total inventory of air conditioners is about 57 million sets. Therefore, in 2016 stock removal still rem ains the “keynote” for the air conditioner industry.

As far as the copper tube processing industry is concerned, in 2016 the copper tube processing post industry will continue to face increasingly grim situation, industry competition intens ified, capac ity c ompression and shrink ing orders will become norm al condition, smoothly passi ng the “cold winter”and ensuring enterprise survival represent the primary issue in the future. It is expected by 2016 China’s copper tube capacity will maintain sm all growth of around 2.02%, to reach 3.189 million tonnes. It is ex pected the output will continue to decline to reach 1.8378 million tonnes, down by 18.5% on Y-o-Y basis; apparent consum ption will f all slightly by 5.37% to reach l.9928 million tonnes.

Table 2 Forecast of China’s copper tube production and apparent consumption in 2016 Unit: 10k tonnes

Judging from development of relevant industries, in October household air conditioner industry has total production of 5.2125 million sets, down by 27.02% on Y-o-Y basis; total sales volume is 5.1764 million sets, down by 24.41% on Y-o-Y basis. Wherein, dom estic sales shipment is 3.1830 million sets, down by 31.3% on Y-o-Y basis; export is 1.9934 million sets, down by 9.97% on Y-o-Y basis, inventory declined by 7.28% on Y-o-Y basis. From January to October 2015 total air conditioner output is expected to reach 133 million sets,down by 8.5% on Y-o-Y basis, it is estimated that whole year total output will reach 155 million sets, down by 2% on Y-o-Y basis; to tal refrigerator output in O ctober is 4.90 m illion sets, down by 1.4% on Y-o-Y basis, down by l4.3% MoM; total sales is 5.004 million sets, up by 0.7% on Y-o-Y basis, down by 11.5% MoM; inventory dropped by 4.8% MoM.

Refrigerator export volum e is l.9 12 m illion sets, up by 6.8% on Y-o-Y basis, up by 4.8% MoM; total refrigerators for dom estic sales is 3.092 m illion sets, do wn by 2.8% on Y-o-Y basis, and down by 19.3% MoM. Total output of refrigerators from January to October reached 77.76 million sets, down b y 8.6% o n Y-o-Y basis, it is estimated that whole-year output will top 90 million sets, down by 3.68% on Y-o-Y b asis; total output of freezers from January to October reached 18.48 m illion sets, up by 9.5% on Y-o-Y basis. It is estimated whole-year output will reach 21.29 million sets, up by 18.3% on Y-o-Y basis.

Against the current market environment, relevant copper tube consum ption fields such as marine engineering equipment, shipbuilding and coal-fired power generation fields similarly are trapped in capacity surplus and inadequate operating. Sea water desalination is an emerging water resou rce recy cling utilization industry in China, currently China is vigorously promoting and constructing sea water desalination industry. According to the‘“Twelfth Five Year” Dedicated P lan for Sea Water Desalination Technology Development’, in 2014 China’s sea water desalination capacity must reach 2.20-2.60 mill ion tonnes per day, and fulfill annual newly added water supply of 700-800 million tonnes, by 2020, China’s sea water des alination capacity targ et must reach 2.5-3 m illion cubic m eters/day. In 2014 the whole nation will newly constru ct 9 sea wate r desalination projects, newly added sea water desalination projects will produce 26100 tonnes of water per day in term s of water production scale, sea water desalination mainly adopts reverse os mosis and low temperature m ultieffect distillation sea water desalination technology. The scale of sea water oncethrough cooling, sea water circulation cooling application continued to grow, annual sea water usage as cooling water has reached 100.9 billion tonnes, newly added usage is 12.6 billion tonn es, the who le yea r will f ulfill 1.4 billion yuan of added value, up by l2.2% than the previous year, in May 2015 Shenhua Group Zhejiang Z houshan Power Plant Sea Water Desalination Project was completed an d launched into production. This project has a construction size of 12000 tonnes/day, and uses low tem perature m ulti-effect distillation sea water desalination (ME D-TVC) plan attach ed with steam thermal compressor. In the aspect of overseas market application, Middle East is a traditional area for s ea water desalination usage, there is constant stable demand for daily maintenance and replacement of sea water desalination therm al e xchange copper alloy tubes. In 20 14 Hailiang Group signed contract with France SIDEM corporation to export 7763 tonnes of copper tube for sea water desalination, this contract’s end users are Middle Eastern countries. Gulf countries plan to invest USD l00 billion in sea water desalination projects w ithin the next decade, which mainly adopt thermal-process technique, and requires huge volum e of copper alloy tube as thermal exchange m aterial. China’s copper alloy tube for sea water desalination has massively entered Saudi Arabia, and Israel via third countries such as South Korea, Japan and France, this provides huge m arket for China’s copper tube production for sea water desalination purpose, in 2015 copper tube consumption for China’s sea water desalination is about 18,000 tonnes, wherein 12,000 tonnes are export products. It is expected that in the next three years, overs eas market demand will grow by about 140,000 tonnes each year, in which newly constructed projects need about 25,000 tonnes, equipment maintenance usage is about 110,000-l20,000 tonnes. By 2016, total demand of overseas m arket will reach about 50,000 tonnes.

Shipbuilding industry is also a key field of copper and copper alloy tube products application. From Ja nuary to November,nationwide shipbuilding industry completed 36.20 m illion DW T, up by l0.9% on Y-o-Y basis. New ship order was 23.19 million DWT, down by 59.1% on Y-o-Y basis. At the end of November, ship holding order was 129.39 million DWT, down by l5.1% on Y-o-Y basis, down by l3.4% com pared to that at the end of 2014. From January to Nove mber, nationwide export ship indus try com pleted 3 1.87 m illion DWT, up by 13.7% on Y-o-Y basis; export ship order was 20.56 m illion DWT, down by 61.4% on Y-o-Y basis; export ship holding order at the end of November was 123.55 million tonnes, down by 15.1% on Y-o-Y basis.

Export sh ip respectiv ely accounted for 88%, 88.6% and 95.5% in nationwide shipbuilding completion volume, newly received orders, and holding orders. Since 2008, judging from industry developm ent, slowdown in global economy d evelopment in the future will directly affect growth of shipbuilding industry, it is expected new ship orders received in 2016 will contin ue to decline by about 20%, the demand for copper and copper alloy tube products w ill d rop to about 40,000-60,000 tonnes.

Automobile industry is an industry for focused support and development in China, according to statistic s and analysis of the China Association of Automobile Manufacturers, from January to November 2014, automobile production and sales respectively completed 21,823,900 sets and 21,786,600 sets, respectively up by 1.8% and 3.3% com pared to same period in the previous year. Wherein production and sales of passenger vehicles respectively com pleted l8,735,200 sets and l8,681,300 sets, respectively up by 4.2% and 5.9% compared to same period in the previous year; production and sales of commercial vehicles respectively completed 3,088,700 sets and 3,105,400 sets, respectively down by 10.5% and 9.7% com pared to same period in the previous year. It is expected in 2015 wholeyear autom obile outpu t will top 23 million vehicles, rising slightly than the previous year.

It is expected in 2016 the autom obile industry will continue to grow, the output will top 25 million vehicles, demand for copper alloy tube for autom obile synchronizer ring will grow slightly, it is expected the consum ption volume of copper alloy ring material will be around 70,000 tonnes.

In power industry, coal-fired power is a traditional application field of copper alloy tube products. In recent years, as tube weldin g technology matures, copper condensation tube gradually is replaced by titanium tube or stainless steel tube. Currently in th e coal-fired power industry, only about 25% of equipm ent maintenance by old enterprises plus some 300,000 KW below coal-fired power units still use a small volume of copper alloy condensation tube each year. Therefore the demand for copper alloy tube products in coalfired power field is steadily dim inishing. China Electricity Council published relevant statistics of the power industry for the period from January to November 2015, which showed that newly added installed capacity and investm ent size of coal-fired power industry rose considerably on Y-o-Y basis, wherein newly added coal-fired power is 47,510,000 kw, coalfired power industry completed 98 billion yuan of investment, up 25.2% on Y-o-Y basis, the increase of coal-fired power investment is favorable for application of copper alloy tube products, but newly added projects basically adopt stainless steel titanium tube, there is no fundamental change in copper tube consumption. It is expected that by 2016 annual demand for copper alloy condensation tube in China’s coal-fired power installed capacity will stay at around 5000 tonnes.