Why is the demand for copper enamelled wire related to power transformers improving? [SMM Analysis]

Power equipment is one of the important downstream fields of enamelled wire, accounting for about 30%. According to SMM's research on the enamelled wire industry, in recent years, the demand for enamelled wire from power transformers has steadily increased, and the operating rate of related enamelled wire companies has remained at a high level for a long time.

Transformers usher in a strong export cycle

With the global energy transition, the demand for power equipment in the market continues to rise. As a core device in the power system, the demand for transformers is growing vigorously. Power transformers, distribution transformers, and supporting electrical equipment produced in China are being exported overseas, ushering in a strong export cycle for transformers.

Taking some transformer export data provided by customs as an example (customs codes 85043290/85044490/85043490), the export of medium-sized transformers (other transformers with a rated capacity exceeding 16 kVA but not exceeding 500 kVA) reached 17.49 million units in 2023, up 189% YoY, indicating that China's transformer exports maintain a good growth trend.

New development opportunities for the power transformer industry during the 14th Five-Year Plan period

With the rapid development of new energy and the growth of power demand, the demand for power transformers is expected to increase rapidly. At the same time, the construction of smart grids and the upgrading of power systems have put forward higher requirements for the intelligence, grid, and digital levels of power transformers, bringing more development opportunities to the power transformer industry. According to the "14th Five-Year Plan for Modern Energy System," the power system is expected to adapt to large-scale high-proportion new energy. The construction of large wind and solar bases has started, and the transmission of new energy power requires efficient power conversion equipment. The power generation needs to adjust the voltage through transformers, and the large-scale grid connection continuously increases the demand for power transformers. Meanwhile, during the 14th Five-Year Plan period, the State Grid plans to build 24 AC and 14 DC ultra-high voltage lines, involving more than 30,000 kilometers of lines, with a substation and converter capacity of 340 million kVA and a total investment of 380 billion yuan. The acceleration of ultra-high voltage construction greatly benefits the upstream and downstream of the industrial chain, and the demand for supporting midstream ultra-high voltage transformers is expected to increase significantly. The new power system is the future development direction of China's power system. As the "central system" of power transmission, transformers are irreplaceable, and their demand will steadily increase.

Energy-saving and emission reduction policies promote the development of the power transformer industry

Under the background of carbon neutrality, energy-saving, emission reduction, and green development have become important strategic choices for the economic development of various countries. As a key device for energy conversion and transmission, power transformers play a crucial role in the power system. Their energy efficiency level directly affects energy utilization efficiency and carbon emission intensity. Currently, there are about 17 million power transformers in operation in China, with a total capacity of about 11 billion kVA. Power transformer losses account for about 40% of transmission and distribution power losses, indicating a significant potential for energy-saving and carbon reduction transformation. The National Development and Reform Commission and other nine departments jointly issued the "Guiding Opinions on Coordinating Energy Saving, Carbon Reduction, and Recycling to Accelerate the Renewal and Transformation of Key Field Products and Equipment," which clearly states that power transformers are one of the six key energy-consuming products that need to be updated. It also sets a goal that by 2025, the proportion of high-efficiency energy-saving power transformers with an energy efficiency level of 2 or above in operation will increase by 10 percentage points compared to 2021, and the proportion of newly added high-efficiency energy-saving transformers will reach more than 80%.

Driven by factors such as the growth of power demand, new energy installations, and the replacement cycle of power grid energy-saving and carbon reduction, the capacity of new and replacement transformers, as key equipment of the power grid, continues to grow. Enamelled wire, as the winding coil, plays a crucial role in transformers. With the rapid growth of power transformers, related enamelled wire companies benefit, with order volumes showing stable growth, and the operating rate is expected to remain at a high level.