Wire and Cable Enterprises Face a Cold Spring Start as Copper Prices and Demand Exert Dual Pressure [SMM Analysis]

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       According to SMM, the operating rate of SMM copper wire and cable enterprises in February was 60.89%, up 5.64 percentage points MoM, 14.14 percentage points higher YoY, but 10.99 percentage points lower compared to March last year (same lunar period). It was 1.15 percentage points lower than the expected operating rate. Specifically, the operating rate of large copper wire and cable enterprises in February was 64.89%, medium-sized enterprises 48.1%, and small enterprises 34.96%.

       Overall, the operating performance of SMM copper wire and cable enterprises in February fell short of expectations. SMM summarized the reasons as follows:

1. After the holiday, copper prices rose beyond expectations, suppressing the release of downstream procurement demand. Upon returning from the holiday, copper prices surged from around 75,000 yuan/mt to above 78,000 yuan/mt, while the initial market psychological expectation was generally in the range of 73,000-74,000 yuan/mt. Market purchases were limited to just-in-need demand, significantly restricting the growth of new orders;
2. The total market demand in February was also insufficient. After the holiday, the market was in a slow recovery process, with limited downstream demand release. By industry, the order placement volume from State Grid Southern Power Grid in February was insufficient, new awarded orders had not yet reached the placement stage, and the order volume of previous orders on hand decreased due to copper price impacts. Orders for medium- and low-voltage construction cables in real estate and infrastructure sectors saw almost no new releases in February. SMM only heard of relatively better performance in PV and submarine cable orders in February, while high-voltage and above orders remained stable.

       From the inventory perspective, the raw material inventory of SMM copper wire and cable enterprises in February recorded 42,835 mt, with a raw material inventory/output ratio of 23.18%, down 2.07 percentage points MoM. Finished product inventories recorded 45,930 mt, with a finished product inventory/output ratio of 24.85%, down 2.91 percentage points MoM. Due to high copper prices and the lower-than-expected increase in new orders, copper wire and cable enterprises controlled raw material purchases to avoid increasing financial costs.

Data Source: SMM

       In March, SMM expects the operating rate of domestic copper wire and cable enterprises to increase by 10.31 percentage points MoM to 71.2%, but decline by 0.68 percentage points YoY, remaining at the lowest level for the same period since 2017. Although downstream demand will recover slowly in March, and the operating rate of copper wire and cable enterprises will see a significant MoM increase, the market currently lacks confidence due to statistical fluctuations, and the outlook compared to the same period in previous years is not optimistic. By industry, orders for medium- and low-voltage construction cables in real estate and infrastructure sectors are the main drag, with new orders growing slowly. The market for State Grid Southern Power Grid orders is expected to gradually place orders in March, but many enterprises anticipate significant changes only by mid-March. Additionally, PV orders may be supported by policy incentives, with potential demand for PV rush installations before May, providing support for PV orders. Submarine cable orders will remain stable. According to SMM, current export orders for cables are also performing well, and the export market will provide short-term support for the operating rates of copper wire and cable enterprises in March.