Current situation and outlook of copper billet market: Focus on the growth of demand in countries in Southeast Asia and Belt and Road Initiative [SMM Copper Summit]

At the 2024 (19th) SMM Copper Industry Conference and Copper Industry Expo - Copper Billet Industry Development Forum, jointly organized by SMM and Shandong Humon Smelting Co., Ltd., SMM Copper Senior Analyst Liu Lu introduced the current status of the copper billet market and its prospect.

Copper billet supply

The copper billet industry cluster is located in Zhejiang, and large enterprises account for more than half of the market share.

Copper billet enterprises are mainly concentrated in Zhejiang Province, which account for over half of the national market share, followed by Jiangxi, Guangdong and Anhui. Since over 50% of domestic copper billet companies are in Zhejiang Province, the local upstream and downstream industries are also relatively developed.

The copper billet industry has a relatively high degree of concentration. The production capacity of large enterprises accounts for more than half of the national production capacity, but the number of enterprises does not exceed 20%. There are no more than 10 representative enterprises with an annual production capacity of more than 100,000 tons, mainly Jintian, Bowei, Keyu, Changzhen, etc.

Note: Annual production capacity of large enterprises ≥ 50,000 tons > annual production capacity of medium-sized enterprises ≥ 20,000 tons > annual production capacity of small enterprises

Continuous casting billet account for about three quarters of the copper billet market share, and market competition is becoming more intense

Copper billets are divided into continuous casting billet and extruded billet. Continuous casting billet accounts for three-quarters of the market share, which is determined by market demand. However, this has also led to serious overcapacity, fierce competition among companies, and a gradual reduction in processing fees. The number of companies participating in the extruded rod market is limited, and the competition is far less intense than in the continuous casting billet market. But the overall market demand is also relatively limited.

Large copper billet factories can produce both continuous casting billet and extruded billet, and have advantages in quantity and technology. The rest of the companies producing extruded billet hardly produce continuous casting billet and mainly focus on extruded rod orders.

The growth rate of copper billet capacity expansion is extremely low and the annual output in China is also difficult to see growth

In the past five years, there have been few new expansions in the copper billet market. According to SMM, large copper billet factories have no large-scale expansion plans, and are more focused on technical transformation and improving production lines.

In terms of output growth rate, there was a significant increase only in the first year after the COVID-19 pandemic due to the resumption of normal production. The subsequent growth rate was lower, and companies were not optimistic about the future market.

Due to weaker market demand, the operating rate in 2023 dropped significantly compared with 2019.

Copper billet demand

Bathroom products are the main downstream of copper billets, but they are heavily affected by real estate

The application of copper billets mainly includes the following industries: bathroom products, hardware accessories, refrigeration accessories, auto parts, communication products, electrical accessories, etc., but the bathroom products account for the largest market share. This industry is closely related to the real estate market and has been greatly dragged down by it in recent years.

Domestic commercial housing sales are under pressure and demand for bathroom products is weak

In the past two years, the cumulative year-on-year sales of commercial housing in China have been negative for most of the time, which shows that the pressure on housing sales is relatively high. Affected by this, the demand for bathroom products has declined significantly.

According to SMM, after the 2024 Chinese New Year holiday, most companies said that orders had recovered well, with only demand for bathroom products continuing to be weak.

Strong performance of the refrigeration industry supports the copper billet market

Under the general environment of economic pressure, the refrigeration industry has performed relatively strongly, the increase in air-conditioning production has been quite obvious, ensuring great demand for check valves. Copper billet companies have actively strived for refrigeration orders, continuously reduced processing fees, and market competition has become increasingly fierce. According to SMM, the processing fees for refrigeration-related products are falling, and copper billet companies have almost no profit.

The demand from auto parts industry is relatively stable, but the downstream settlement period is long

China's automobile production and sales volume remained relatively stable. Demand from the auto parts industry remained relatively stable.

With the rise of new energy vehicles, their proportion in the total number of vehicles is increasing, while the proportion of traditional vehicles is decreasing. Some connectors and other components of new energy vehicles use high-performance alloys, but there are certain technical barriers to production. Only some companies can produce them.

According to SMM, the current market situation of traditional auto parts is relatively stable, but there is a certain payment period. There are also differences in the acceptance of payment periods among copper billet companies.

The demand from the communications industry has been declining

The output of base stations is declining and the growth rate has turned negative. This is mainly because China's communication base stations have been relatively well built. In the upgrading of 4G to 5G network, only some components need to be updated, meaning limited demand for copper.

The growth rate of mobile phone production has also declined significantly in recent years. However, the growth boom in 2021 will be short-lived. Based on the service life of mobile phones, 2024 may become the turning point of the mobile phone replacement cycle. In addition, the development of AI technology will usher in a new cycle of development in the communications industry, and the demand for replacing new phones may increase. Overall, although the demand for copper billet companies in the communications industry is relatively stable at present, it remains to be seen whether it can rise in the future.

Prospect

The rapid rise in copper prices in 2024 will suppress downstream orders

In the first quarter of 2024, copper prices rose rapidly. China's supply of brass mainly relied on overseas markets. The quotations of overseas traders were more firm than in 2023.

According to SMM, after the sharp rise in copper prices, the purchasing enthusiasm of downstream companies has declined significantly, and they purchased as required. Copper billet companies were under great pressure in April.

Due to the significant increase in copper prices in 2024, copper billet companies will be under pressure. Raw material prices are high and in short supply, and the purchasing interest of downstream companies may be suppressed.

The property market will still be under pressure in the future and the demand from bathroom products will unlikely to grow

Land transactions and the amount of real estate development investment maintained the downward trend, and the number of new commercial housing will decline significantly in the next two years. The decline in newly started floor space of commercial housing is even more significant. This will have a major impact on the domestic bathroom market.

SMM predicts that the growth rate of floor space of completed buildings will be -10%, dragging down copper consumption by 2%. It is expected that the floor space of completed buildings will decline significantly in the next two years.

Domestic demand is difficult to grow, focus on overseas demand

Domestic demand is weak and it is difficult to see growth, so the copper billet market will look to overseas demand. According to the valve export data, although the total export volume in 2023 decreased, it was still at a high level overall. We should pay attention to the demand growth in countries in Southeast Asia and the Belt and Road Initiative. In addition, the export of new energy vehicles remains strong. Although the growth rate has slowed down, it is still in the positive range.