The wire and cable industry is the second largest industry in the country after the automotive industry. In recent years, the consumption of copper accounts for 60% to 86% of the total domestic copper consumption. The development of the wire and cable industry directly affects the demand for domestic refined copper. And ultimately affect the price of copper. Therefore, understanding the development status and characteristics of China's wire and cable industry, analyzing its future development trend and predicting the future demand for copper is very necessary for the copper futures market.

Wire and cable is a large class of electrical products used in the fields of transmission and distribution of electricity, transmission of electricity, information such as sound, text, images, and lighting. It is an indispensable basic equipment for the manufacture of various motors, electrical appliances, and instruments. The basic products necessary for infrastructure construction, new smart grids and new energy industries. The wire and cable industry occupies 1/4 of the output value of the domestic electrical industry. It is the second largest industry in the country after the automotive industry. China's wire and cable output value has exceeded the United States and has become the world's largest wire and cable producer. The upper reaches of the wire and cable industry are mainly raw material supply companies, such as copper rods, aluminum rods, and other wire and cable material companies. There are many cable consumption industries, including power grids, automobiles, machinery manufacturing, rail transit, aerospace, and household appliances. Wait.

Wire and cable classification and corporate profit model

According to the classification of the National Bureau of Statistics, the wire and cable industry belongs to the electrical machinery and equipment manufacturing industry. Classified by purpose, the main products include power cables, bare wires, winding wires, cables for electrical equipment, communication cables and optical cables. Wire and cable products are classified according to voltage levels, which can be divided into different voltage levels such as low voltage, medium voltage, high voltage, ultra high voltage, and extra high voltage. In China, the voltage below 110KV is called the distribution voltage, and it completes the function of stepping down the power and distributing it to the power user in a certain way; the voltage between 110KV and 1000KV is called the transmission voltage, and the long distance to complete the power. Transmission function. In the transmission voltage, the voltage between 110KV and 220KV is high voltage, the transmission voltage between 330KV and 750KV is ultrahigh voltage, and the voltage above 1000KV AC and plus or minus 660KV is called UHV.

The wire and cable industry management organization is the China Electric Industry Association's China Electric Industry Association's wire and cable branch. Its main function is to assist the government in the industry self-regulatory management, represent and maintain the interests of the wire and cable industry and the legitimate rights and interests of member companies, organize the development of wire The cable industry, in keeping with the rules and regulations, etc.

Ordinary cable companies mainly make profits by earning processing fees. When an enterprise signs a sales contract with a customer, it generally uses the purchase price of a copper (aluminum) pole plus a certain percentage of gross profit as its sales price. In terms of payment collection, customers mainly use stage payment mode, such as “2—5—2—1” mode, that is, 20% prepayment will be paid after the contract is signed, 50% after product delivery, and 20% after product installation is completed. The remaining 10% is paid as a quality guarantee after the warranty expires. This payment model requires cable companies to rationally plan cash flow and avoid cash flow difficulties. In the procurement of copper (aluminum) rods, some purchase prices adopt the current price model, and some adopt the pricing model of copper aluminum spot price plus copper aluminum rod processing fee. Different procurement and sales modes make cable companies deal with raw material price fluctuations. There will be different risk exposures.

Wire and cable industry development analysis

I. Characteristics and Problems of Wire and Cable Industry

At present, China's wire and cable industry has shown a rapid development, the capital structure is dominated by private capital, the industrial structure is excessively dispersed, and the product structure is based on the low-end development pattern.

1. The industry is developing rapidly

During the "10th Five-Year Plan" period, with the rapid development of China's economy, the wire and cable industry maintained an average annual growth rate of 16.87%. In 2006, China's wire and cable industry realized sales revenue of 386.592 billion yuan, surpassing the United States as the world's largest wire and cable producer. In 2008, the industry's sales revenue exceeded 500 billion yuan, becoming China's second largest industry after the auto industry. At the end of the "Eleventh Five-Year Plan" period, the industry sales output value was 2.6 times the end of the "Tenth Five-Year Plan" period, and the total industry assets were 2.1 times the end of the "Tenth Five-Year Plan" period.

2. The capital structure is mainly based on private capital

According to the National Bureau of Statistics, there were 4,653 state-owned and above-scale enterprises in the wire and cable industry in 2009, of which privately-owned enterprises accounted for 73%, total assets accounted for 63.9%, sales accounted for 67.6%, and employees accounted for 55.6%. The total profits and taxes accounted for 70.5%, and the value of shipments accounted for 22%. In terms of assets, private enterprises accounted for about 60%, and foreign-funded enterprises accounted for more than 20%. State-owned enterprises accounted for less than 20%. Private enterprises occupy a dominant position in the wire and cable industry. However, in China's wire and cable industry, companies that are in the absolute leading position in the industry are several well-known multinational companies and leading companies in the domestic cable industry. The second level is the leading position in the cable industry, but the first There are certain gaps in the level of enterprises, as well as enterprises with certain monopoly advantages in certain product areas. The third level is other enterprises that lack characteristics and competitiveness, and most of them are private SMEs.

3. Over-dispersed industrial structure

According to the statistics of certain institutions, there are currently as many as 7,000 wire and cable companies in China, of which small and medium-sized enterprises are the main ones, and the largest companies have a market share of only 1% to 2.5%. According to the National Bureau of Statistics, the market share of China’s 19 largest cable companies accounted for only 11.7% of the industry at the end of 2009. The market share of the top three US companies in the country reached 54%, and the share of the top seven companies in Japan. Accounted for 86% of the industry, the UK's top 12 cable companies have a concentration of 95%. The direct consequence of numerous companies and low industrial concentration is the decline in industry profitability and overcapacity, and the adjustment and integration of wire and cable industries is imperative.

4. The product structure is mainly based on the low end

China is a big country in wire and cable production, but it is not a strong country in wire and cable production. At present, although China's cable industry has a high production capacity, there is a problem of irrational product structure. Companies mainly produce low-value-added medium- and low-voltage cables, and their production capacity has become oversupply. Market competition is fierce, and profitability is also high. There is a decline, while high-end, ultra-high voltage and other high-end cable products rely on imports. In 2009, China imported 281,900 tons of wire and cable products, and the import amount was US$3.676 billion. Compared with 2004, the import volume decreased by 72,900 tons, but the import amount increased by US$1.301 billion. According to the data of the General Administration of Customs, during the "Eleventh Five-Year Plan" period, the average unit price (unit weight price ratio) of China's imported cable products is about twice that of the export products. China's high-voltage, ultra-high voltage power grid construction investment is increasing, but most of China's cable companies are difficult to produce the products required by the market, which has become a major challenge for the cable industry.

Second, wire and cable industry development prospects

1. The main driving force for the development of the industry

First, the process of urbanization. Since the reform and opening up, China's urbanization process has accelerated. In 1978, the urbanization rate in China was only 17.92%. In 2009, the urbanization rate reached 46.59%. By the beginning of 2011, the urbanization rate in China has exceeded 47%. Since the reform and opening up, the urbanization rate has increased by an average of 0.88 percentage points each year. However, the level of urbanization in China still lags behind the average urbanization level of 49% in the world, and there is ample room for improvement compared to the level of urbanization in 78% of high-income countries. According to the "China Development Report 2010: China's New Urbanization Strategy for Promoting Human Development" issued by the China Development Research Foundation, if China's GDP grows at an average annual rate of 6% over the next 20 years, China's per capita GDP will reach 13,000 by 2030. Dollars. If we can comply with the development trend of the market economy and gradually eliminate the systems and other obstacles that hinder the development of urbanization, by 2030 China's urbanization rate should be able to reach the level of 65%. With the rapid increase in the level of urbanization, the demand for urban construction on transmission and distribution wire and cable and rail transportation cables will continue to grow.

Second, power grid construction. During the "Twelfth Five-Year Plan" period, China will continue to promote the transformation of rural power grids and the construction of UHV grids. The authoritative experts of the State Grid Energy Research Institute recently stated that the State Grid will invest 2.55 trillion yuan in the construction of power grids during the 12th Five-Year Plan period, of which 500 billion yuan will be used for the investment of UHV grid lines, and 500 billion yuan will be used for allocation. The investment in grid lines, in addition to about 1.55 trillion yuan for other voltage levels of the grid line investment. During the "Eleventh Five-Year Plan" period, the national grid used for power grid investment was 1.5 trillion yuan, and the "12th Five-Year Plan" grid investment increased by 68% year-on-year. The increase in power grid investment has become a direct driving force for the development of the cable industry. In particular, the construction of UHV power grids has brought tremendous opportunities and challenges to China's cable companies. In order to obtain UHV orders, China's cable companies must increase scientific research efforts to master high-voltage, UHV cable manufacturing technology as soon as possible, and improve the manufacturing process.

Third, the construction of high-speed railway network. In the “Twelfth Five-Year Plan for Comprehensive Transportation System Development (Draft for Soliciting Opinions)” (hereinafter referred to as the “Planning”), the entire transportation infrastructure construction goal was proposed: By the end of 2015, the national rapid railway network will be basically completed. And the National Expressway Network, improve the layout of the Bohai Rim, the Yangtze River Delta, the southeastern coastal areas, the Pearl River Delta, and the southwest coastal port groups, accelerate the construction of inland waterway networks, civil airports, oil and gas pipelines, and urban transport facilities, and promote the development of comprehensive transportation hubs. The five-straight, five-horizon" comprehensive transportation network with its main skeleton has a total mileage of 4.89 million kilometers. For the rapid railway network, by 2015 China's rapid railway mileage will reach 45,000 kilometers, with a five-year growth rate of 438.4%. Minister of Railways Sheng Guangzu said that when arranging construction of the “Twelfth Five-Year Plan” railway, it will arrange infrastructure investment to reach 2.8 trillion yuan, and the total scale of new line production will be controlled within 30,000 kilometers. By 2015, the national double-track rate and the exchange rate of electricity will be respectively Achieves 50% and more than 60%. The increase in railway investment is bound to increase the demand for locomotive cables, communications and signal cables.

2. Risk factors for the development of the industry

First, raw material prices fluctuate significantly. Copper and aluminum are the most important raw materials for the wire and cable industry. The large fluctuations in their prices will directly affect the profitability of cable companies. In extreme cases, they may even lead to a survival crisis.

Second, the impact of policy adjustments on the balance between supply and demand. China is a market economy under macroeconomic control. The introduction and adjustment of national industrial policies will have a major impact on related industries. At present, the industrial policies related to the cable industry mainly include plans related to power grid construction, plans related to the construction of railway networks, strategic emerging industries such as automobiles and advanced equipment manufacturing and new energy, and plans for energy-saving and emission reduction, as well as real estate-related projects. Control and protection of housing development and other policies, the development of these industries will directly affect the demand for wire and cable. However, as the formulation and implementation of policies will often be adjusted according to the national economy and the actual development of the industry, this adjustment will cause the market's expected supply and demand to change, which will affect the development of the cable industry.

Third, the sustainability of the global economic recovery. The world's major economies are in the process of recovery, but the recovery is more complex: the US recovery is weak, real estate and manufacturing are sluggish, and inflation continues to rise. The current debt and government deficit problems have cast a shadow over the U.S. economy; Europe The debt crisis frequently broke out, and inflation was high, and the economy showed signs of weakening. This made the ECB’s monetary policy makers difficult. China’s economic growth was relatively stable, but inflation was the current major issue. Under the continuing tightening policy, the economy Weakened, domestic cable companies have experienced tight cash flow, and their living environment has continued to deteriorate. Uncertainty in the economic trend makes the survival and development of the cable industry, which is already small, easier to be affected by economic fluctuations.

3. Development Prospects of Wire and Cable Industry

On the one hand, domestic cable companies are faced with many development opportunities. On the other hand, they face complicated economic environment and unreasonable industrial structure. This contradiction makes cable companies' living environment more complex, and the internal structure adjustment and integration needs of the industry are also increasing. strong. We believe that in the future, the domestic wire and cable industry will focus on private and foreign-funded or joint-venture companies, and the concentration of the industrial structure in the fierce competition will continue to increase.

In terms of industry growth, according to the statistics of the National Bureau of Statistics, the sales value of cable industry in 2009 reached 731 billion yuan. During the period from 2006 to 2009, the compound growth rate of industry sales was 26.8%, and the compound annual growth rate of industrial assets was 20.6%. . As the main drivers for the development of supporting cable industry, such as urbanization, power grid construction, household appliances, transportation and other industries, will continue to grow steadily in the next five years, while the "12th Five-Year Plan" China's GDP growth in industrial restructuring and other policy adjustments The overall growth rate should be lower than the “Eleventh Five-Year Plan”. In addition, taking into account that the current cable companies actually have excess production capacity, the main development direction is changed to industry consolidation, adjustment, and increase industrial concentration, so its sales and investment growth rate will be It will slow down. Therefore, we estimate the growth of sales value of the cable industry during the “12th Five-Year Plan” period to be 20%, and the lower limit is estimated to be the average value of the growth rate of industrial added value from 2008 to the present 13%.

In terms of product structure, due to the accelerated construction of UHV power grids during the “Twelfth Five-Year Plan” period, the demand growth of high-voltage and UHV cables will increase substantially. In addition, with the development of high-end industries such as domestic high-speed railway networks and large aircraft, the demand for special cables and wires will also increase. However, currently these two parts of the cable are mainly obtained through imports. As this part of the cable has a high added value, it will prompt domestic cable companies to increase their research efforts and advance to the high-end of the industry chain. The fastest way to achieve localization is through joint ventures with foreign cable companies. Changes in the industrial structure will inevitably lead to changes in the product structure. The competition of ordinary cable manufacturers will become more intense and the pressure for survival will increase. The proportion of high-end products in cable output will steadily increase.

Forecast of copper demand in wire and cable industry

The wire and cable industry is the main industry for domestic consumption of refined copper. Estimating the demand for copper in the industry in the future is of great significance in judging the growth of copper consumption.

First, the amount of history

According to the statistics of the Shanghai Cable Research Institute and the China Electric Industry Association's wire and cable branch, the output of copper conductors in the wire and cable industry was more than 4 million tons in 2009, and copper wire and cable consumption accounted for 60%-80% of domestic copper consumption. The copper content of various wire and cable products is roughly: 20% - 30% for power cables, 28% - 30% for electrical equipment, 26% - 29% for winding wires, and 5% - 7 for communication cables %, other cables account for 4%-5%. In wire and cable, the output of power cables accounts for the highest proportion.

Second, the future usage estimates

Since we can't get the annual specific output of each cable product, we use the growth rate of copper and aluminum consumption in the cable industry in recent years and estimated GDP growth rate to estimate the consumption of copper and aluminum in the wire and cable industry in 2015. , According to the ratio method, the total consumption of copper and aluminum in various domestic industries in 2015 was reversed.

The data for 2010 and before are known data, among which the domestic copper consumption uses the CRU report data, and the copper conductor consumption comes from the statistics of the Shanghai Cable Research Institute and the China Electric Industry Association's wire and cable branch. From the historical data, the consumption of copper conductors in the cable industry has increased steadily, but the growth rate is slowing down. The main reason for this is that with the development of the economy, the demand for cables has increased substantially, and the cable industry has also expanded substantially. However, in recent years, the industry has become saturated and its output growth rate has decreased. The use of copper naturally shows similar trends.

As the progress of urbanization and investment in power grids and other industries have continued, we believe that the total demand for cables will increase steadily. Taking into account the current status of industry saturation and the massive release of actual demand in recent years, we gave the industry a 2% growth rate of low-speed copper and a high-speed expectation of 3.5%. Based on this, we calculated the cable industry in 2015. Copper volumes were 4.82 million tons and 5.26 million tons respectively. In addition, from the perspective of industry growth, the annual compound annual growth rate during the “10th Five-Year Plan” and “Eleventh Five-Year Plan” period is not much different from the GDP growth rate at that time. Therefore, we assume that the average annual compound annual growth rate of copper conductors is low. We estimate the future consumption of copper conductors at a value of 7% of the GDP growth target set by the national “Twelfth Five-Year Plan” and a higher GDP growth rate of 9.5% that we assessed.

At a low compound annual growth rate (7%), the copper conductor consumption in 2015 is estimated at 4.75 million tons, which is close to the assumption of a high-annulus growth rate; at a high compound growth rate (9.5%), the estimate is 671 Ten thousand tons. As there are some differences between the two forecasting methods, we take their average value as the final forecast, that is, the cable industry's copper consumption in 2015 was 5.38 million tons. At the same time, copper used in the cable industry accounts for a large proportion of total refined copper consumption in the country, between 60% and 80%, compared with around 32% in developed countries. We believe that with the adjustment of China's industrial structure and the upgrading of consumption structure, the percentage of cable in total copper consumption will gradually decline, but this ratio will hardly reach the level of developed countries during the “12th Five-Year Plan” period. We have assumed a higher expected value of 60% and a lower expected value of 50% based on the changes in the ratio of wire copper used in recent years to push back the total consumption of copper in the future. Through the estimation, the average value of the final calculation will lead to a domestic refined copper consumption of approximately 9.87 million tons in 2015. Starting from 2009, the average annual compound growth rate will be approximately 6.5%.