Copper Mines Are Actively Expanding Production To Increase Smelting Profits, And The Processing Side Is "intervening". New Energy Will Support Future Copper Consumption｜Industry Observation
Finance News, December 5 (Reporter Liang Xiangcai) At a time when nonferrous metals are generally under pressure and falling, copper is still hovering in a relatively high price range, but the industrial chain has benefited unevenly.
Upstream mines such as Zijin Mining (601899.SH) and China Molybdenum (603993.SH) have strong motivation to expand production, and the profits of the midstream smelting sector are also rising against the background of high raw material supply.
However, the downstream copper processing industry has fallen into widespread involution. A copper processor in Guangzhou told an Associated Press reporter: "The premium is too high. It was close to 1,000 yuan per ton some time ago. The money is made by the upstream. The unit volume is okay. The profit margin is very low. Some small factories have been forced to close. ”
Many industry insiders told reporters from the Financial Associated Press that under the current low inventory situation, they are relatively optimistic about the future copper market due to factors such as favorable macroeconomics and the continued rise in demand for copper in the new energy field.
Vehicles working in a copper factory in Guangzhou Jiangxi Copper Group's industrial chain company in Guangzhou (photographed by a reporter from the Financial Associated Press)
"Involution" of downstream processing end to seize market share
South China, represented by Guangdong, is not only the main domestic copper production base, but also a major consumer market. Reporters from Cailian News recently conducted investigations in Guangzhou and Foshan and learned that the current copper downstream processing industry is generally trapped in involution.
The relevant person in charge of a copper rod factory complained to a reporter from the Financial Associated Press: "The current copper price is unacceptably high, but the previous orders had to be shipped, and they were basically purchased on demand. As long as the loss is not big, We still have to capture market share.”
In addition, a person in the copper industry chain told a reporter from the Financial Associated Press: "Demand recovered in October and orders were okay, but this month (November) it got worse again because too much money was taken up, so production volume was reduced. "It is usually decided based on demand. Now I rarely do real estate transactions, and even if I do, they are mostly cash transactions." "
It is reported that electricity is the basic consumption of copper, accounting for about 50%. Specifically, the application products are mainly copper wires (copper rods). According to SMM research data, due to sufficient orders from refined copper rod companies in October, orders on hand are expected to be scheduled until mid-to-late November. Therefore, most copper rod factories still have sufficient production schedules in November, and their operating rates are also relatively good year-on-year. However, the new orders of most refined copper rod companies in November are not satisfactory, and the operating rate is expected to decline month-on-month. The operating rate of the refined copper rod industry is expected to be 74.17% in November, a month-on-month decrease of 1.86% and a year-on-year increase of 4.45%.
Smaller copper rod manufacturers in South China generally said that "the market is very bad this year" and "it is difficult for large manufacturers to get orders from small factories, and the overall profits are very low."
Jinlongyu (002882.SZ) is a leading wire and cable manufacturer in South China. "The cost of raw material copper in the company's products is relatively high, which has a greater impact on profits. However, the industry generally adopts the cost-plus model, and fluctuations in copper prices will eventually be reflected in the selling price of the final product." The reporter learned from the company as an investor .
Copper foil products, which were previously highly profitable, have also lost popularity, and the industry is generally under pressure. Taking Tongguan Copper Foil (301217.SZ), a leading domestic copper foil manufacturer, as an example, the company's revenue in the first three quarters was 2.777 billion yuan, a slight year-on-year increase of 0.61%; the net profit during the same period was 60 million yuan, a year-on-year decrease of 97.43%. The company stated in a relevant announcement that copper foil processing fee income has declined due to multiple factors such as global economic instability, downturn in the consumer electronics market, and industry competition.
An industry insider told a reporter from Cailian News: "Whether there is excess copper production capacity can be directly seen from the processing fees. Now the overall profit of copper processing is meager. Even the most expensive copper foil series products sold before have a lot of "It's close to cost price, and now their life is not good. "
Xiao Chuankang, an analyst at the Copper Division of Shanghai Steel Union, told the Associated Press reporter that from the perspective of the entire copper industry chain, top-down profits are gradually decreasing, especially the profits of copper processing products, which have been affected by upstream and downstream enterprises in the past two years. of squeezing. The downward contraction is more obvious; taking refined copper rods as an example, according to My Steel's follow-up survey this year, the average annual profit per ton is less than 100 yuan, which is very low from the perspective of capital utilization.
The production workshop of a large copper processing factory (provided by the interviewee)
Expansion of mine production increases smelting profits
Unlike the involvement of the downstream processing industry, the upstream mining and midstream smelting links are highly profitable.
my country's two major copper mining companies, Zijin Mining and China Molybdenum Group, are currently expanding production. Zijin Mining's mined copper output in 2022 will be 860,000 tons. The mined copper guidance targets in 2023 and 2025 are 950,000 tons and 1.17 million tons respectively, an increase of 10.47% and 36.05% respectively compared with 2022.
"This year's production guidance target has been achieved normally. In terms of copper (mined copper), the output in the first three quarters was 750,000 tons. Judging from the progress in the third quarter of this year, production has been completed relatively quickly." The reporter said that the investor's identity is from obtained by the company.
China Molybdenum Co.'s mined copper production is improving. According to the company's 2023 production guidance, copper production ranges from 384,000 tons to 447,000 tons, with a median of 415,500 tons, an increase of approximately 50% from the 2022 output of 277,000 tons.
Relevant sources from China Molybdenum told China Financial News that in the first three quarters of this year, the company's overall copper metal output was 288,000 tons. The three production lines of the TFM ore blending project - the central zone ore blending production line, the east zone oxidation ore and ore blending production lines have all been put into operation. The current production progress is in line with output expectations, and copper output is expected to further increase in the fourth quarter of this year. Next year, the company's copper metal production in the Democratic Republic of Congo is expected to reach about 600,000 tons.
In terms of smelting, according to Choice data, copper concentrate smelting and processing fees have increased overall since 2021, recently reaching a historical high of US$94/ton.
The average price of copper concentrate TC/R in the Yangtze River Nonferrous Market is US$/ton (data source: Choice)
Currently, the mining end is the most profitable link in the copper industry chain. Zhang Weixin, senior analyst of nonferrous metals at CITIC Futures, told the Associated Press reporter that due to rising energy prices, by-product prices have also increased, which has eased the pressure on cost elasticity, and the mining industry is still the most profitable link. On the smelting side, although short-term spot TC has fallen, global copper mines are still in a period of investment expansion. The growth rate of raw ore output remained above 1%. Increased supplies of raw materials are expected to give smelters a bargaining advantage, while high prices for smelting by-products acid and gold and silver are also supporting profits. In addition, downstream supply demand supports refineries’ willingness to raise prices, so refineries’ profit margins are relatively high.
New energy may become the main driving force for consumption growth, and market expectations are optimistic
A relevant person from China Molybdenum Co., Ltd. told a reporter from China Financial News that under the background of "dual carbon" and the transformation trend of the new energy industry, the company is optimistic about the application of copper in this field. From a mid- to long-term perspective, global copper consumption in the three major industries of photovoltaics, new energy vehicles, and wind power will account for 10% in 2022. Copper consumption in the new energy sector is expected to double in 2025, and global copper demand is expected to account for more than 20%.
According to information provided to reporters by relevant personnel of Zijin Mining, the company and CRU forecast data predict that the total global copper demand will reach approximately 30 million tons by 2030, an increase of 18% from 2021. The demand for copper in new energy continues to rise and has become an important area supporting copper consumption. It is expected that copper used in new energy will account for 25% of total global copper consumption by 2030.
At the performance briefing meeting held by Jiangxi Copper (600363.SH) on October 16, Tu Dongyang, the company’s deputy general manager and secretary of the board of directors, said that with the impact of domestic economic recovery, falling U.S. inflation and other factors, the copper market continues to remain tight. balance. Copper prices are expected to maintain a high and volatile trend.
A recent research report from Minmetals Securities mentioned that from a supply and demand perspective, the compound annual growth rate in the new energy field will reach 20% from 2020 to 2030, becoming the main driving force for copper consumption growth. From 2023 to 2030, the new energy industry is expected to bring about a cumulative increase in copper demand of approximately 2.6 billion tons, offsetting the decline in traditional copper consumption to a certain extent.
Xiao Chuankang told reporters from the Financial Associated Press that it is expected that copper prices will be difficult to get out of the obvious trend years ago and may continue to fluctuate at high levels; judging from recent surveys, in the first quarter of 2024, from the perspective of electrolytic copper and even upstream anode copper, scrap copper and other products , the overall copper market may still be in a tense state, and copper prices may rise again at this stage.
However, some people in the industry are more cautious. Zhang Weixin said that in the short term, the warming of domestic and foreign macroeconomics and tight supply and demand will mainly drive copper prices to fluctuate at high levels in the short term (to the end of the year), but the room for growth is limited. In the long term, overseas economic growth will decline, domestic recovery will continue to be weak, the space for releasing favorable policies will narrow, and the support for prices from policy expectations will weaken. In addition, after the end of overseas monetary tightening policies, expectations for RMB appreciation have further strengthened, which may bring more significant downward pressure on Shanghai Copper in the future.
It is worth mentioning that domestic copper inventories are close to low levels. Choice data shows that as of December 4, domestic social stocks were only 54,000 tons, close to a four-year low. The Financial Associated Press recently learned at the site of a copper delivery warehouse in Guangzhou that, except for a very small amount of restricted copper plates, there was no copper available for delivery in the warehouse.
This article comes from Liang Xiangcai, a reporter from the Financial Associated Press
