SHANGHAI, Dec. 27 (SMM) – A self-imposed cooperative pact has been reached among eight major domestic air-conditioning precision copper tube producers in order to safeguard the producers’ interest, to guarantee markets are run open and fairly, as well as to standardize modes of payment for the industry.
The pact includes several aspects. First, producers signing the pact will be guided by China’s Nonferrous Metals Processing Industry Association and accept industrial guidance. Second, domestic precision copper producers currently generally accept bills which require the payment of interest for air conditioners, which greatly affects cash liquidity at producers. However, according to the new pact, precision tube producers will no longer accept such bills after 1 January 2011, and will also no longer pay interest. Third, precision copper tube producers will increase investment in R & D, strengthen communication and cooperation with the air-conditioning sector in order to help air conditioning and refrigerator producers save energy and reduce emissions. Fourth, a credit mechanism will be established and organized under the China’s Nonferrous Metals Processing Industry Association in order to strengthen mutual supervision and combat unfair competition.
According to industry sources, the eight precision copper tube producers include Golden Dragon Precise Copper Tube Group, Zhejiang Hailiang Company, Jiangsu Xingrong High-tech Company, Ningbo Jintian Copper Group, Guangdong Jingyi Metal Company, Zhejiang Honglei Copper Industry Holdings, Wuxi Longda Copper Company, and Jiangsu Cuilong Precision Copper Tube Corporation.
According to SMM data, copper tube output at these eight copper tube/pipe producers accounts for approximately 40% of China’s total copper tube/pipe output. SMM contacted these producers and all stated they had been waiting for such a pact for a long time. The pact came after recent copper price increases and growing cash flow pressure following the increase in the reserve requirement ratio by China’s Central Bank.
Most of the eight producers are optimistic concerning the effect of the pact and believe few, if any, will choose to violate the agreement. Copper tube/pipe producers have suffered from existing market operations in which they must pay forward discounts after receiving acceptance bills from air conditioner manufacturers. Producers which are not among the initial eight copper tube producers will gladly join if the effects are positive. By that time, the mode of the payment in the sector should be standardized.
SMM believes implementation of the pact will add cash flow pressure to air conditioner producers and may negatively affect orders for copper tubes in the short term. In addition, some of the eight copper tube producers say they have already refused to take orders with payment modes including a 6-month forward discount. However, the producers believe even if they lose orders, it will be worth any financial losses if existing market operations are changed.
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