2018 H1 Copper Rod Marketing Analysis Report



2018 H1 Copper Rod Marketing Analysis Report

1. Overall copper rod marketing status in 2018 H1

Due to tight policy, financial pressure, lack of product competitiveness and so on since 2016, homebred small-and-medium rod manufacturers have been successively making room for imported capacity to extend its volume growth.

1．1 A slight YOY growth was seen in 2018 H1 copper rod production

Overall copper rod production market in 2018 H1 was quiet, so were power grid, automobile and real estate and other terminals. Tax reform in 2018 H1 seemed to be the “energy” for copper rod production industry. As for consumption side, the biggest consumption field, power grid reached a total investment of RMB 141.4 billion from January to May RMB 141.4 billion, YOY decrease of 21.2%; automobile yield achievement was 17.768 million vehicles, YOY increase of 3.84%, dropping by 0.65 percent point in growth rate over last year. From January to May, NEV yield achievement reached 325 thousand vehicles, YOY increase of 122.8%, but still with relatively small overall scale; real estate has been under the impact of policy, so floor-space-completed area and sales area dropped greatly in growth rate. Weak consumption side brings pressure to copper rod consumption.

In 2018 H1, Antaike followed and investigated national medium-and-large copper rod manufactures, among which 18 copper rod manufactures were used as statistical samples in this report. Total involved capacity is 5235 thousand tonnes, 24 production lines, accounting for over 45% of total national copper rod capacity and over 60% of total imported copper rod capacity, mainly covering East China, South China and North China. In H1, sample enterprises achieved accumulated yield of 2026 thousand tonnes, YOY increase of 1.67% and comprehensive capacity utilization of 77.42%. Wherein, comprehensive capacity utilization in East China, South China and North China is 77.1%, 68.52% and 96.52%. Due to Q1 vacation influence, overall performance is in general level. In East China area, Jiangxi Copper Guangzhou Copper Material Plant did a very good job under full production.

1．2 Busy production, poor benefit

In 2018 H1, sample enterprises reached a total yield of 911 thousand tonnes, YOY increase of 3.3%, better than the same period last year. At the end of quarter, under the tax reform, significant change was seen in spot copper premium and discount, most copper rod enterprises were faced with the dilemma of busy production and poor benefit. Furthermore, price differs greatly by month, which inevitably led to enterprise profit loss as they accepted discount orders. Led by the reason of Spring Festival months, great change in yield was seen in January and February, YOY increase of 21.44% and YOY decrease of 20.8% respectively. Wherein, in January, copper rod production maintained an upward continuity from last year and it enjoyed the support of orders from downstream enterprises. On entering February, the whole chain enterprises suspended operation for Spring Festival. Some enterprises launched maintenance in various degrees, so here came normal vacation drop in yield. After vacation, overall production ushered in restorative increase period. In March, YOY yield increase was 5.18% and MOM yield increase was l02％.

1．3 Tax reform policy influenced and enterprises urged production for fast delivery

In 2018 Q2, sample enterprises reached a total yield of 1116 thousand tonnes, YOY increase of just 0.37%. Influenced by tax reform, in April, manufacturers were dedicated to full production to complete early-stage orders so as to well face new tax policy that would take effect in May. At the end of May, downstream consumer enterprises were getting tight in financial condition so orders for manufacturers were going down; in June, due to significant fluctuation in copper price, downstream consumers were in strong wait-and-see attitude. Manufacturers yield was in downhill trend and total yield suffered from a YOY decrease of about 7%. It’s a great seasonal transition.

1．4 Market share of homemade capacity was shrinking

Under the supervision of environmental protection policies, reverberatory-furnace-waste-copper rod manufacturing was further compressed in capacity because of raw material problem. Its raw material has problems with air pollution and “7 types of waste import” so it will never be given the preferential tax refund policy. There is a significant gap between homemade continuous casting and rolling and imported ones, but some enterprises had to reduce cost by adjusting raw material structure in order to obtain more market share； The market share of upper lead wire in 8MM-copper rod market was decreasing. In 2018 H1, due to the reason of either the aforesaid or fund guarantee ability, this part of capacity was shrinking.

2. Copper-rod-related consumption field analysis

2．1 Nationwide power grid investment in 2018 Jan-May had a YOY decrease of 21.2%

Nationwide power grid investment in 2018 Jan-May was RMB 141.4 billion, YOY decrease of 21.2%, accounting for only 28.9% of annual plan, the lowest level for the past three years. Based on 2018 plan and performance of previous years, in H2, power grid investment will speed up and will promote copper rod consumption. What’s more, this year, the commutation project of 680 million KVA will also drive copper rod consumption.

From January to May, newly added infrastructure power generation capacity was 33.88 million Kw, 1.86 million Kw less than a year earlier. Among it, hydro power was 1.48 million Kw (2.98 million Kw less than a year earlier), thermal power was 9.8 million Kw (3.5 million Kw less than a year earlier), nuclear power was 1.13 million Kw, wind power was 6.3 million Kw (1.08 million Kw more than a year earlier) and solar power was 15.18 million Kw (3.49 million Kw more than a year earlier).

2．2 Policy regulation, real estate industry showed no signs of rise

From January to May, nationwide real estate development investment was RMB 4142 billion, YOY nominal growth of 10.2%, growth rate dropping by 0.1 percent point over January to April.

From January to May, the construction area of real estate development enterprises was 6849.91 million sqm, YOY increase of 2.0%, growth rate rising by 0.4 percent point over January to April. Among that, residential construction area was 4697.70 million sqm, increasing by 2.5%; newly-commenced project covers construction area of 721.90 million sqm，increasing by 10.8％, 3.5 percent point rise in growth rate; completed construction area was 304.84 million sqm, decreasing by 10.1% and 0.6 percent point drop in decrease; commercial residential building sales area was 564.09 million sqm, YOY increase of 2.9%, 1.6 percent point rise in growth rate over January to April.

So far, a rise in investment acceleration has been seen but the growth of newly-commenced construction area, completed construction area and sales area are still at their lowest level since recent years ago. Overall real estate environment is in its growth slowdown under the pressure of policies.

2．3 Stable increase in auto production and marketing, significant increase in NEV production and marketing

In 2018 January to May, YOY increase was seen in auto production. In May, YOY increase and slight MOM decrease was seen in auto production.

In 2018 January to May, auto production was 11.768 million vehicles and sales volume was 11.792 million vehicle, YOY increase of 3.8% and 5.7% respectively. In May, auto production was 2.344 million vehicles and sales volume was 2.288 million vehicles, YOY increase of 12.8% and 9.6% respectively.

In 2018 January to May, NEV production and sales volume was both 328 thousand vehicles, YOY increase of 122.9% and 141.6% respectively. Among that, BEV production and sales volume was both 250 thousand vehicles, YOY increase of 105.1% and 124.7% respectively; PHEV production was 79 thousand vehicles and sales volume was 78 thousand vehicles, YOY increase of 207.3% and 218.4% respectively.

2．4 Electrical compressor and air conditioner motor

In 2018 January to May, production of refrigeration equipment and air conditioner motor made active performance. Freezer compressor presented negative growth in Q1 but other products enjoyed stable growth. Wherein, rotary compressor reached yield of 93.837 million compressors, YOY increase of 19.6%; freezer compressor achieved yield of 68.008 million compressors, YOY increase of 7.9%; air conditioner motor achieved yield of 167.5 million motors, YOY increase of 23.7%.

3. Summary and outlook

In 2018 H1, production remained tepid. Yield of statistical samples rose a bit but industrial capacity had been experiencing structural adjustment toward large-and-medium enterprises since 3 years ago. Capacity in the market have been relatively concentrated and the overall performance suffered from recession. Furthermore, we see production expansion of big enterprises and market withdrawal of small-and-medium enterprises, so we deduce copper rod capacity will concentrate even more. In 2018 H2, based on nowadays power grid investment progress, the progress will be even greater and will promote copper rod consumption. Besides, at the beginning of Q3, copper price dropped significantly, so downstream consumers were injected with new purchasing vitality. Low copper price will drive consumption. It is estimated that in H2, copper rod capacity will enjoy dynamic stability, with imported capacity consolidating leading role in market and homebred copper rod capacity presenting stable but slight growth.