Copper Industry II: The Growth of the Copper Market Is Guaranteed, And Domestic Copper Companies Need to Be Stronger

Copper is not only an essential metal resource but also a significant strategic resource related to the national economy and security. At present, China has been the largest producer of refined copper in the world, whose production accounts for half of the total production. However, many enterprises have expanded the refined production blindly, leading to increased production capacity and a threat to the ecosystem.

Global Copper Smelting Capacity Is Overcapacity, And Domestic Increase Is Significant

The global copper smelting capacity is relatively surplus. The refining operating rate remained at about 75% before 2017. The growth rate of global copper consumption has declined in recent years, but the expansion of global smelting capacity, especially in China, has not slowed down, resulting in a decline in the smelting operating rate, Currently around 70%. This has also led to relatively excessive demand for concentrates by smelting companies, fierce procurement competition, and disadvantages in the process of processing fee negotiations. On the whole, copper smelting capacity has been surplus for a long time, and rough smelting capacity and refining capacity are not the bottlenecks.

Since 2008, China's copper smelting industry has developed rapidly, with output increasing by nearly 200%. The problems of blind expansion and low-level redundant construction have been prominent, the degree of industrial intensification is low, competitiveness is not strong, and structural contradictions have become increasingly prominent. In 2019, China's refined copper production capacity has reached 12.59 million tons per year, and the investment in the copper smelting industry increased by 40.9% year-on-year; the refined copper output was 9.78 million tons, and the capacity utilization rate was only 77%. With the continuous growth of new and expanded production capacity, China's refined copper is expected to reach 14.22 million tons per year in 2021, further exacerbating overcapacity. At the same time, as a national strategic resource, copper resources in China only account for 4% of the world's reserves. In recent years, as the economically recoverable reserves of copper resources continue to decline, the self-sufficiency rate of copper concentrates has dropped from 43.25% in 2000. To the current 22.8%, the domestic resource guarantee capacity is seriously insufficient, and the degree of foreign dependence has further expanded.

Overview of China's Copper Market

Considering that China's copper consumption accounts for nearly half of the world's copper consumption, China has always been one of the main forces driving global copper consumption. As China enters a period of economic restructuring, the growth rate of demand for copper has slowed down significantly, resulting in significant restrictions on the growth rate of global copper consumption. Before 2014, the output of copper processing materials in China showed a rapid upward trend. After 2015, enterprises in the industry were merged and reorganized, and outdated production capacity was continuously eliminated. Copper enterprises continued to develop in the direction of high value-added, high-precision products. In addition, since 2016, due to the extension of the complete cycle of the real estate market and the slowdown in demand growth in the home appliance industry, the overall demand for copper has entered a period of stability, which has led to fluctuations in upstream copper production.

From the perspective of sub-categories, copper wire is currently the largest product category in copper processing materials. Due to stable downstream demand, the market is large and the growth rate remains above the industry average. And the growth of copper tubes and copper foil is worthy of attention.

The data shows that electricity accounts for 37.06% of the final copper consumption, while copper consumption in the construction industry accounts for about 20.6%. Compared with steel, the demand for copper materials is significantly more concentrated. Electricity investment has an impact on the price of copper.

Steady Growth of the Copper Market Is Guaranteed in China

There will be steady progress in traditional copper consumption which plays a dominant role in copper consumption. From January to September, the electricity consumption of the whole society was 5.41 trillion kilowatt-hours, an increase of 1.3% year-on-year and a decrease of 3.1 percentage points from the same period last year; the power generation of power plants above-designated size nationwide was 5.41 trillion kilowatt-hours, an increase of 0.9% year-on-year. A drop of 2.1 percentage points over the same period; the country's newly installed capacity was 72.24 million kilowatts, which was 7.69 million kilowatts more than the same period last year, an increase of 11.9%; the power supply projects of major power generation enterprises nationwide completed investment of 308.2 billion yuan, an increase of 71.5% year-on-year, an increase of 65.5 percentage points over the same period last year.

The demand for air conditioners performs well. Data show that in August, total output increased by 3.32% year-on-year, and total sales increased by 2.78% year-on-year. Sales growth was mainly driven by exports, and exports increased by 7.49% year-on-year.

The automotive sector provides power, especially the new energy vehicle market. Data show that in October, China's automobile production and sales completed 2.552 million and 2.573 million respectively, an increase of 11.0% and 12.5% respectively year-on-year. The automobile market's production and sales situation continued to improve, which continues to maintain a year-on-year rapid growth momentum. It is also worth mentioning that the new energy market performed outstandingly. The production and sales of new energy vehicles were 167,000 and 160,000, respectively, an increase of 69.7% and 104.5% year-on-year. Among them, pure electric vehicles are the largest segment of new energy vehicles, with production and sales accounting for 84.4% and 83.1% respectively.

Both the completion of real estate and the renovation of old communities can stimulate the demand for copper. Real estate completion mainly uses equipment cables. Affected by the epidemic in the first quarter of this year, the completed area of local production has dropped significantly. Until August, the decline began to narrow. Superimposed on the disparity between the area under construction and the area completed in the past two years, the growth rate of the area completed in real estate is expected to rebound, which will stimulate demand in the copper market. Besides, with the advancement of the renovation project, the stimulating effect on copper consumption will gradually appear.

Domestic copper companies are large but not strong, with overcapacity, serious product homogeneity, and the lack of high-level, high-value-added professional teams, resulting in a disadvantaged position in international competition. Therefore, only when domestic enterprises develop to a high level, high added value and specialization, can the development of China's copper companies enter an active circle.


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