What metal raw materials are needed in the electrical industry?
Electrical industry products include power equipment, power systems and power transmission and distribution products, automatic control systems and products, safety and environmental protection equipment, lighting and temperature control systems and other system equipment and products used in many fields.
The main raw materials of the power equipment industry are steel and non-ferrous metals. From the perspective of various sub-sectors of power equipment, the proportion of non-ferrous metals in the raw material composition from large to small is power lines, transformers, generators, switches, relays, etc.
Comparing the prices of steel, copper and aluminum, we can see that copper price > aluminum price > steel. Since the highest price of copper has a great impact on corporate procurement costs, the electrical industry pays more attention to the trend of copper prices.
Review and outlook of copper prices
At the beginning of this year: the market expected that the relaxation of domestic pandemic-control would drive consumption, and copper prices rose rapidly and remained high.
Second quarter: The crisis of overseas small and medium-sized banks combined with the slowdown in domestic demand caused a sharp decline in copper prices; in early June, overseas interest rate hikes came to an end and domestic growth stabilized, and copper prices rebounded from lows.
Expectations of a U.S. interest rate hike in September have reappeared, coupled with rising U.S. 10-year Treasury bond yields, domestic real estate has experienced renewed turmoil. Copper prices have continued to fall again. Copper output will increase noticeably in Q4.
Smelter maintenance in 2023 concentrated in the first half of the year, impact of maintenance reduced after July
In the first half of the year, smelters were intensively overhauled. According to SMM statistics, there were as many as 16 smelters undergoing overhauls from January to June, and many of them were major overhauls, which had a greater impact on output. In the second half of the year, there were only 9 smelters with plans for overhauls.
The price of sulfuric acid rebounded, and the operating rate of smelting plants increased in the second half of the year; the smelting plants resumed production in the second half of the year. This, combined with new plants being put into operation, increased the total output.
Domestic production continues to rise, consumption still acceptable
After August, output increased significantly, while domestic consumption recovered. This, combined with stronger demand for copper cathode on the back of a narrower price spread between copper cathode and copper scrap, prevented significant increase in total domestic inventory.
Smelter output in the fourth quarter exceeded expectations. SMM expects China's copper output to increase by 1.29 million mt to 11.57 million mt in 2023.
China's copper cathode production totalled 10.28 million mt in 2022, an increase of 3.07%. The output growth in 2023 is estimated at 1.29 million mt or 12.5%.
Continuous delivery to LME warehouses has led to a large increase in inventory; Yangshan copper premiums stopped falling and rebounded.
Scrap copper has perfectly explained its importance in recent times
Copper prices have fallen sharply, causing the price difference between refined and waste products to narrow rapidly. It has now narrowed to 258 yuan/mt.
After the National Day holidays, copper cathode was quickly destocked. Due to the shortage of scrap copper, the operating rate of scrap copper rod companies dropped significantly, and the operating rate of copper cathode rod companies hit a new high in the year.
Infrastructure engineering VS consumer goods Industry
Operating rate: Copper semis operating rate rebounded slightly in the third quarter
It can be seen from the operating rate of copper pipes, copper cathode rods and copper plate/sheet and strip that the operating rate of copper semis rebounded slightly in the third quarter.
Power grid investment turned positive year-on-year, but the delivery volume to the State Grid in the second half of the year was low, causing consumption to weaken rapidly.
In 2023, China increased the planned investment in power grids from 509.4 billion yuan last year to 520 billion yuan, a year-on-year increase of 2.1%, which is weaker than last year's 4.3% increase;
The concentrated delivery volume of the State Grid in the first half of the year promoted the rapid improvement of electricity consumption. However, the growth rate dropped sharply to only 1.5% in August, and the delivery volume in the fourth quarter was not as good as in previous years, which will drag down copper consumption in the second half of the year.
China’s new energy sector will show explosive growth in 2023
SMM predicts that the total copper consumption in the PV and wind power industry will reach 1.76 million mt in 2023, a year-on-year surge of 46.5%, accounting for 12.7% of copper cathode consumption, an increase of 3.7 percentage points.
The property market still faces challenges in the long term. Consumer goods (major appliance and automobiles) have fully recovered month-on-month.
The policy of guaranteed delivery of buildings has greatly increased the completed housing area, with a year-on-year increase of 19.8 from January to September; but the construction rate was -23.4;
The domestic hot weather in the first half of the year caused domestic sales of air conditioners to exceed expectations, but the decline in the second half of the year obviously dragged down copper consumption in the second half of the year.
The automobile sector has maintained growth driven by new energy vehicles, with a year-on-year growth of 7.31% from January to September, and the penetration rate of new energy vehicles reached 30%.
At the end of the year, focus on U.S. debt risks and high accumulation levels. Copper prices are expected to be weak.
The U.S. debt risk and the U.S. government may face the risk of "shutdown" at the end of the year. Only a weak recovery of the domestic economy cannot fully hedge the risk. Moreover, domestic production and imported copper have increased, and the fundamentals will present a situation of oversupply and inventory accumulation; nonetheless, the supply of secondary copper is tight.
The global economy is expected to weaken further next year, and oversupply will continue to exist. The copper prices in 2024 may be lower than in 2023.
