Copper production cuts are unlikely to ease oversupply pressure

In 2015, copper prices at home and abroad fell for the third consecutive year, and the impacted copper smelting industry took the lead in advocating production cuts. However, China's copper smelting industry is not only difficult to reduce production, but also has a slowing demand. The reduction in output of 350,000 tons is expected to be difficult to effectively relieve the excess supply pressure in the copper market.

Domestic refined copper production is concentrated in the resource distribution areas of Jiangxi, Anhui, Gansu, Yunnan, Hubei, and Inner Mongolia, but some regions without geological resources have also developed smelting capacity in large quantities, and occupy a higher proportion in China's refined copper industrial structure. , such as Shandong, Zhejiang and other regions.

The copper industry is a capital-intensive and technology-intensive industry. Its capital strength, mine resources, production scale, technical equipment, environmental protection, and production management experience constitute major barriers to entry. Related departments also implement access and announcements on the copper smelting industry. As a result, the industry has a higher barrier to entry. Therefore, the characteristics of the domestic copper industry dominated by large-scale smelting enterprises are more prominent and the industry concentration is higher.

According to Antaike data, by the end of 2015, China's crude refining capacity and total refined copper production capacity reached 6 million tons and 10.41 million tons. Among them, the smelting capacity of the top ten smelters in China's copper smelting industry reached 5.45 million tons, accounting for about 52% of the total production capacity.

Looking forward to 2016, China's crude refining capacity and refined production capacity are expected to reach 6.55 million tons and 10.96 million tons, respectively. It is estimated that the actual effective new capacity will be 490,000 tons, due to the 2-3 year cycle required for putting the production into operation. Therefore, I expect that the reduction in output of 350,000 tons by 10 major backbone smelting companies will not be sufficient to offset the impact of output growth brought about by new capacity.

From the output point of view, due to the continued decline in copper prices in 2015, many copper smelting companies are not at full capacity, and maintenance companies have increased, but refined copper production is expected to remain at more than 6%, reaching around 8.2 million tons.

According to the copper backbone enterprise proposal, “deciding to shut down the loss-making capacity in the short term first; in the medium- and long-term, to avoid repeating the mistakes in the industry-wide losses caused by serious overcapacity in other industries, the backward production capacity will be further accelerated and the future will be decided. We will no longer increase production capacity in the same year, and at the same time recommend to the relevant state agencies to stop approving new copper smelting capacity, increase support for key enterprises, and guide social capital to take equity, equity, and other capital means to merge and restructure the industry so as to maintain domestic Copper smelting production capacity is generally stable. I believe that the actual reduction in production in 2016 is based on three factors: copper price, cash cost, and corporate control cost. Once the copper price rebounds or the cost is further compressed, it is difficult to actually reduce copper production. .

From the point of view of industry supply and demand, the copper industry chain must break through, on the one hand to achieve a balance between supply and demand. Under the current background of supply-side reform, the expansion of copper smelting capacity may tend to be orderly, but capacity expansion is slowing down and supply growth is decelerating. It needs demand coordination. If demand continues to slow down, even if the copper smelting capacity expansion slows down, it will not be enough to support the recovery of the main business of the copper smelting industry. On the other hand, the industry needs to upgrade, and the focus of supply-side reform is to increase effective supply, not simply shutting down. Only by realizing capacity upgrades and realizing product diversification and high added value, such as adding high-precision copper pipes and seawater desalination copper pipes and other indispensable products, can the competitiveness of products be improved and the industry be upgraded from the primary to the medium-to-high level.

From the perspective of demand, in 2016, due to economic restructuring, the growth rate of the manufacturing industry in the latter part of heavy industrialization will continue to be weak. Including the pressure on destocking in the construction industry, especially in the real estate industry, copper demand will continue to slow down. With industrialization coming to an end and entering the era of service industry, China's unit GDP growth rate will accelerate down. According to calculations, in 2014 China’s unit copper consumption per unit of GDP fell to 132,832.36 ton/10 trillion yuan, and in 2003 China started the phase of modern industrialization and urbanization. At that time, China’s unit GDP consumption was as high as 225,803.25 tons per 100,000. The amount of billions. In 2015, the copper consumption per unit of GDP in China will further decline, and there is a high probability of approaching the level of 100,000 tons/100 trillion yuan.