Tungsten increases the share of domestic cutting tools "production capacity expansion + extended category"

With the expansion of cemented carbide applications, cemented carbide consumption has exceeded 50% of tungsten consumption. Recently, affected by the raw material market, manufacturers generally hesitate to sell, and tungsten prices continue to rise. At the beginning of 2022, Zhangyuan Tungsten (002378.SZ), Jiang Tungsten Group and Xiamen Tungsten Industry (600549.SH) raised the prices of different products slightly. What is the impact of upstream cost changes on tool listed companies?

In an exchange with some people in the cutting tool industry, a reporter from the Financial Associated Press learned that changes in the prices of raw materials can be transmitted to downstream products. At the beginning of this year, most manufacturers have raised the prices of some products by a range of 2-6%. After the increase, the gross profit margin is flat or slightly higher than expected. At present, the production capacity of various leading companies is in a state of full production and full sales, and some high-end product production capacity will be gradually released in the first half of this year. Domestic leading tool enterprises mainly develop and replace imported cutting tools, due to different product coverage subdivisions. This year, the concentrated release of production capacity is still committed to increasing the local share.

The cost of tungsten raw materials is rising, and the price of tool manufacturers is adjusted slightly.

With the high price of tungsten, Zhangyuan tungsten industry announced that the price of cemented carbide products will rise from January 18 at the beginning of this year. Cemented carbide is widely used in cutting tools, aerospace, automotive industry, CNC machine tools and other industries. Tungsten carbide and cobalt powder are the main raw materials of tool companies in the field of cutting tools. Domestic tool products are transitioning from low-end tools to middle and high-end tools. Tool leading companies raised the price of their products last year.

With regard to the continued rise in the raw material end, an insider from a Hunan cutting tool company told the Financial Associated Press that the company has raised the price of products of one of its brands, with an adjustment range of 3% to 5%, but not all products have been adjusted. The proportion of products shipped as a whole is in the range of about 30% and 40%. After the price adjustment, it can basically cover the rising impact of the cost of raw materials.

The person in charge of 688308.SH told reporters that due to the continuous rise in the price of the company's main raw materials, the company has issued a notice of price adjustment, raising the prices of some products by 2% and 6% since January 1 this year. By increasing inventory at low prices, adjusting the procurement ratio of recycled materials and adjusting product prices over the same period last year, the company can control the fluctuation of raw materials, and the gross profit margin is still rising compared with the previous year.

The reporter noted that Euro billion issued several price adjustments last year, issued two price increase notices in early and mid-2021, and adjusted prices again for some products in August 2021. Judging from the changes in gross profit margin, its overall gross profit margin increased to 34.33% from 32.59% in the first quarter of last year.

According to past industry experience, tungsten carbide and cobalt powder are often adjusted up to a certain extent in this time window before and after Chinese New year, and from the latest price increase of raw materials, the latest price increase of raw materials is still relatively mild compared with the first half of last year, the relevant person in charge of Sinovel (688059.SH) told the Financial Associated Press. By raising the prices of some products, the company's gross profit margin can remain stable. The financial report shows that although the upward trend of upstream raw material prices has not changed, the overall gross profit margin of the company's products remains above 50%.

Medium Tungsten Hi-Tech (000657.SZ) said that the company has a wide range of products and different processing cycles, so the order price can not fully match the changes in the price of raw materials. Without considering the time difference, it can be transmitted, but it has time lag. People related to Euro 100 million also believe that due to the small proportion of tool costs in downstream processing costs, the company Synchronize adjusts product prices, and the rise and fall of raw material prices can be transmitted to the product side to a certain extent.

The main theme of this year is "capacity expansion + extended category", with an increase in the average price of high-end products.

According to the data of the tool Branch of China Machine tool Industry Association, the market share of high-end tools in China accounts for more than half of the whole tool consumption market, and about 2% of the high-end market relies on imports. However, with the rise of China's tool manufacturers, the proportion of total import consumption has dropped from 37.17% in 2016 to 31.12% in 2020. Aimed at the local replacement of this "cake", domestic head manufacturers are accelerating the release of new production capacity this year.

Sinovel will add 30 million cemented carbide CNC blades and 5 million cermet blades, the company said that the company's new CNC blade production capacity will be extended to non-standard, special-shaped finishing and other fields, by broadening the company's product range, so as to enhance the proportion in aerospace, rail transit and other high-end downstream applications. The company has developed some large customers since the first half of last year, and there is a large demand for customized products, and the price of these products will be higher than that of products in the general field.

It is understood that the company's fundraising project expects the average price of cemented carbide and cermet CNC blades to be 9.86 yuan / piece and 9.2 yuan / piece respectively in the first year of production, compared with the company's overall average price of 6 yuan / piece in 2020. Volume and price is expected to rise. At the same time, the company's new production capacity includes cutter head, Arbor and other supporting products, as well as new cermet blades and efficient drilling tools.

The above-mentioned person said that on the whole, the growth rate of high-end tools will be relatively high in the future. The company's new production capacity of 40 million CNC blades is higher than the previous products, and the production capacity will be gradually released in the first half of this year, the price and gross profit margin will be increased accordingly, and the improvement of gross profit margin mainly depends on the optimization of product structure.

In addition, the tool products are in continuous iteration, in the scale expansion at the same time, the variety expansion speed will be relatively fast. The company perfects the existing series of product specifications in the core advantage area. For example, a customer may need more than 30 blades before, but the company originally provided only more than 10 of them. As the company's product category becomes more complete, it can provide more than 20 or more products.

According to reports, CNC cutting tools have the characteristics of a wide variety of products and scattered application fields. after years of development, domestic leading enterprises take their own superior products as the core and focus on the downstream processing fields. has formed a certain degree of dislocation development. The above-mentioned people of OKE billion believe that at present, the share of domestic cutting tools is still relatively low, accounting for more than 30% of the total, and most of them are still imported. At present, the head company's capacity expansion is aimed at the import replacement market. Last year, domestic head manufacturers were still restricted by limited production capacity, and supply and demand were tight.

Combing statistics show that the CNC blade production capacity of China Tungsten High-tech, Occo billion and Sinovel Precision will reach about 300 million pieces, assuming that the average price is 8 to 12 yuan per piece, corresponding to an output value of about 24 to 3.6 billion yuan. compared with the potential import substitution space (about 15 billion), the scale of production capacity is still small. Huaxi Securities Analysis said that some foreign and domestic tool companies raised prices one after another in January, which is good for domestic tool manufacturers, and with the increase in the proportion of revenue of high-end CNC blades from domestic tool manufacturers, there is still room for improvement in the average price of products.