Melya Futures: Chinese copper rod processing industry

Abstract: The copper rod processing in the primary consumption field of the copper industry chain should be an industry facing the most difficulties in many categories of copper, with overcapacity crisis, low utilization rate, and the substitution effect of scrap copper

The core content?? Copper industry chain at the beginning of the end consumer in the field of copper rod processing should be copper many categories most troubled industry, overcapacity crisis, utilization rate is low, the waste substitution effect, regional competition, processing pressure, the profit level is not high, capital takes up big, high cost loss, do not have a unified pricing model, point trading and hedge harder. All these will be constraints to the development of the copper rod industry in the future. The inflection point of the industry clearing may gradually appear in this round of copper price cycle. Perhaps the current production difficulties faced by enterprises under the high copper price is the catalyst for industry upgrading and reform.

In the downstream consumption of the primary end of China's copper industry, copper rod and wire account for more than 40%, which is the field with the largest demand for copper. After decades of development, the competition in China's copper rod industry is increasingly intensified, with obvious regional characteristics. Especially after the current copper price climbed step by step to a record high level, the cost pressure for downstream processing enterprises is greater and the risk is increased. This paper tries to analyze the dilemma faced by the copper rod industry and analyze the possible way of clearing the copper rod industry in the future.

Dilemma 1: Copper rod overcapacity, copper scrap replacement obvious copper rod overcapacity has been a problem, the substitution effect of copper scrap accelerated this change. First of all, we from the point of view of the supply of domestic copper rod production change, the use of refined copper production of oxygen free copper rod by the above processing rod continuous casting and rolling and low oxygen rod is given priority to, the output of low oxygen bar is far higher than that of without oxygen bar, and low oxygen bar exists obvious copper scrap substitution effect, the copper scrap replacement proportion about 30%, copper rod industry after 10 years of expansion of production capacity, At present, it has completely entered a state of overcapacity. As can be seen from the output data in the following figure, the production capacity of copper rods has reached more than 15 million tons after the expansion in the past three years. However, the actual output of copper rods has been maintained at about 8 million tons, and the capacity utilization rate has also shown a downward trend year by year, maintaining the range of 60% to 70% all year round. From the perspective of changes, after 2015, the expansion rate of copper rod production capacity began to slow down and entered a stable period, but the inflection point of the industry has not yet arrived.

1: China copper rod capacity and output

Copper rod on the cost side of the advantage, quality can achieve preserved resistance rate of downstream demand, when fine fee spreads rose to a certain extent, copper scrap will appear obvious increase, the demand is no tax of fine scrap price shown in the figure below, you can see as copper prices rose, pure waste spreads reflect the advantages of copper scrap, we carried out in accordance with the copper scrap ticket point deductions, Essence of the current price already broke through 2400 yuan/tons of scrap boundaries, and in accordance with the above 2000 before spreads will significantly boost copper scrap demand, the price has already lasted for quite a long time, the superposition of imported copper policy reform, can see imported copper appeared obvious growth, domestic copper scrap also appeared incremental demand, The rate of operation of the scrap rod began to be high.

2: fine waste spread (excluding tax)

3: operation rate of refined copper rod and scrap copper rod

Trap 2: Restrictive process cost pressure for a long time, area Copper rod processing enterprises are faced with the dilemma is the processing fee is not high, and there are vicious competition, the enterprise profit is the only source processing, copper rod and the determination of processing not with the fluctuation of the price adjustment, changes can be seen from below processing calendar year, Processing most of the time in 400-600 yuan/ton range, overcapacity off hard copper rod, copper rod processing enterprise competition, from the graphics changes, waste copper rod processing fee and fine spreads, there is a negative relationship in 500 near the toll fee corresponding to the high pure waste spreads, from the perspective of production enterprises to explain this change also has certain rationality, Copper scrap cost advantage increases, and the downstream in the majority with cable order, guarantee the quality after system of copper rod, and lower cost, enterprises can give a more toll fee reductions in exchange for the growth of the orders, subsequent copper scrap consumption increase gradually, under the trend of competition of copper rod processing fee will also be further intensified, copper rod profits face under pressure over a long period of time.