北矿力澜 BGRIMM LILAN CONSULTING Review of China s copper fabricating industry Brian Peng BGRIMM LILAN CONSULTING April 2018 Portugal
Introduction ICSG signed contract with BGRIMM Lilan Consulting, Ltd (BLC) for a study in Nov, 2016 Three research outputs have been obtained A updated database of fabrication capacity (2016) A survey of copper (refined copper and scraps) usage in the fabrication industry (2016) A market study covering major semis production, market status, demand, downstream application industries (2016-2017) BLC submitted the final report in July, 2017 This presentation is to summarize the main findings of this study. 2 BGRIMM Lilan Consulting 2018
Content 1 China s Copper Fabricating Industry 2 China s Cu & Cu Alloy Semis Production 3 China s Cu & Cu Alloy Semis Demand 4 New Projects 3 BGRIMM Lilan Consulting 2018
China s Cu Fabricating Industry Tubes 12% Capacity breakdown RBS 5% Alloy wire 2% Copper foil 1% Foundry castings 0.2% PSS 12% Wire rod 68% *:Some fabricators own several mills for different products, resulting in the unmatched total plant number *: All of fabricators are first copper usage plants based on 2016 survey. The fabricators with buying-in mother tube, mother coils and billets are not included in. Chart Number of fabricators and capacity breakdown in 2016 113 fabricators with 861kt/yr capacity in the previous survey left the industry ; 31 fabricators with 1,634kt/yr capacity suspended production temporally in 2016. 405 operational plants (including uncertain ones) with 19 million t/yr capacity are covered by the updated survey 4 BGRIMM Lilan Consulting 2018
Copper and copper alloy semis production Between 2013-2016, Cu and Cu alloy semis production increased av. 6.2% annually; Wire rod production, rose av. 5% annually in 2013-2016, but production growth should lose the momentum in 2017-2020. 5
Raw material breakdown kt 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2013 2014 2015 2016 2017(e) 2018(f) 2019(f) 2020(f) Refined copper- brass mills Refined copper- wire rod Scrap-fed-brass mills Scrap-fed--wire rod Scrap usage 13% 12% 12% 11% 11% 10% 10% 9% Raw material breakdown 2013~2020 Refined copper and scraps usage by fabricators in 2016 6 10% of Cu materials of China s copper fabricators were scraps in 2016 and the rest 90% were refined copper. Directly scrap usage by fabricators has been down in recent years because of scrap shortage, upgrading of wire rod facilities and the improved requirement for high-end product quality. Scrap usage increased by 5.7% to 1,189kt in 2016, of which 71% was used by brass mills and the rest 29% for wire rod. Increased copper prices encouraged scrap usage in 2016.
Wire rod-production and demand kt 9,000 7,000 5,000 3,000 Wire rod production Imports Exports Demand growth rate 7% 6% 5% 4% 3% Telecom cable 2% Bare wire Electrical 5% Equipment 10% building wire 19% Power cable 40% 1,000 2% 1% Magnet wire 24% (1,000) 2015 2016 2017f 2018f 2019f 2020f 0% China wire rod application fields 2016 Wire rod demand increased 6.0% YoY and 4% in 2016 and 2017, respectively. Production growth will be slower over the next few years. Wire rod demand growth in power cable was 3% YoY for 2017 given the double-digit growth in spending on the power distribution grid. Magnet wire production increased 10% in 2017 driven by strong aircon and auto production. Wire rod demand for building wire rose by 4% in 2017 driven by the increased demand in both home renovation and new housing completions. 7
Wire rod-capacity China wire rod capacity and production 2010-2017 Chinese wire rod capacity increased by av. 9% between 2010~2017. Nearly 1Mt new capacity was added every year. In 2017, capacity increased 7.2% to 15.5 Mt, while production rose 4% to 7.95 Mt, driven by the infrastructure, housing, electronic goods, white house goods, auto, etc. Wire rod capacity utilization rate was about 51% in 2017. Wire rod overcapacity resulted in a mixed production trend. Well-financed wire rod mills reported stable production. 8
Wire rod-newly commissioned projects Kt/yr 1800 1600 1400 1200 1000 800 600 400 200 0 *: CCC :(Chinese continuous casting) 2013 2014 2015 2016 2017 SCR ContiRod Other(CCC) 148 wire rod mills with 12,840kt/yr. capacity in the survey. Average size of wire rod mills was 88kt/yr in 2016. In 2013-2016, 24 wire rod mills with 5,005kt/yr capacity were commissioned, which most adopted imported SCR or ContiRod lines. 5 wire rod mills with 1,100kt/yr capacity were launched in 2016. and 8 wire rod mills with 1,006kt/yr capacity were commissioned in 2017. More CCC projects were out in 2017, encouraged by the widened scrap spreads. 3 projects with 285kt/yr are expected to be commissioned in 2018. 9
Sheet/strip-demand 1100 900 700 500 300 100-100 Refined copper PSS demand 2015 2016 2017f 2018f 2019f 2020f 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Production Import Export Demand growth rate kt 1700 1500 1300 1100 900 700 500 300 100-100 Copper alloy PSS demand 2015 2016 2017f 2018f 2019f 2020f 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Production Import Export Demand growth rate Sheet/strip total demand grew 9.0% in 2016, and 5%YoY in 2017, and will slow down in 2018-2020. 10 In 2016, refined copper strip demand increase was mainly from the power transformer strip and power cable shielding strip. Copper alloy sheet/strip demand increases were driven by a better than expected demand for connectors for automobiles, home electrical appliances, mobile phones and other electronic products.
Sheet/strip- new projects kt/yr 120 Expansion New 100 2013 2014 2015 2016 2018 80 60 40 20 0 In 2013-2016, 9 projects/expansion programs with 360kt/yr capacity was commissioned, driven by high quality products demand. + 6 new projects with 275kt/yr capacity are in the pipe line after 2018, of which 180kt capacity was for expansion. 11
Refined copper and copper alloy tube kt 1800 1600 1400 1200 1000 800 600 400 200 0-200 Refined copper tube demand 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% kt 400 350 300 250 200 150 100 50 0 Copper alloy tube demand 6% 5% 4% 3% 2% 1% -400 2015 2016 2017f 2018f 2019f 2020f -8% -50 2015 2016 2017f 2018f 2019f 2020f 0% Production Import Export Demand growth Rate Production Import Export Demand growth Rate In 2016, refined copper tube demand was mainly driven by strong aircon and refrigerator production. ACR tube demand accounted for 70% of total refined tube demand. And refined copper tube production increased 12% in 2017 due to strong aircon production and gas-fired boilers substitution. Alloy tube : soft demand from the shipbuilding industry, desalination and thermal power plants construction were offset by improved demand from the housing decorations, home hardware and military applications. 12
Tube- new projects 100 90 80 70 60 50 40 30 20 10 0 Capacity kt/yr 2013 2014 2016 2018 2019 7 copper/copper alloy tube projects with 250kt/yr capacity have been commissioned after 2013. Due to both increased production and higher profits, a new round of expansion is ongoing after sluggish market during 2015-2016. 13
Copper alloy rod demand kt 1200 1000 800 600 400 200 0 2015 2016 2017f 2018f 2019f 2020f -200 Production Import Export demand growth rate 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% some small brass rod mills were shut down due to EP regulations in 2017. Copper alloy rod demand increased 3.8% in 2016 and 4.7% in 2017, respectively, driven by stronger demand for housing related hardware, sanitary products, aircon valves and auto industry. 14 BGRIMM Lilan Consulting 2018
Copper foil-new projects 45 40 35 30 25 20 15 10 5 0 capacity kt/yr 2017 2018 Copper foil demand in 2016 increased by 20% YoY, supported by both strong printed circuit board (PCB) and Li-battery production. 14 projects with 151kt/yr capacity are in the pipeline after 2017, and 73% capacity are for lithium battery. If all of these projects come on stream, China s total copper foil capacity will reach 445kt/yr by 2018. 15
Copper usage by individual industry Industrial equipment 11% Others 4% Transportation 10% Construction 18% Infrastructure 38% General consumer goods 19% Breakdown of Cu usage by individual industry in 2016 16 Copper usage in infrastructure increased 7% and 4.5% in 2016 and 2017, respectively, given the strong spending in the power distribution gird ; Copper usage in construction was up 6.5% and 4% in 2016 and 2017, respectively, given better than expected housing transactions and housing completions ; Copper usage in general consumer goods increased by 6% and 9% in 2016 and 2017, respectively, because of the strong aircon production and exports; Copper usage in transportation sector increased by 12% and 6% in 2016 and 2017, respectively, driven by strong auto production growth for income tax subsidy.
Brian Peng Email: peng@lilanconsulting.com Tel: +86-10-63299740 Fax: +86-10-63299744 17