Asian Metal: Thank you for taking the time to participate in this interview. Can you give me a brief background on your company?

Liao: Walsin Lihwa has two core parts in the base material fields, electrical wiring and cables and special steel. Walsin has three copper rod plants in China and Taiwan and also has a production base for electrical wire and cables, communications cables and steel cables used in infrastructure construction.

We started in the industry back in 1966 and created value through efficient decisions and respecting the market rules for customers. Moreover, we have advanced equipment, outstanding production management and professional technology, so we are a leading company, though the competition is fierce. In 2014, we produced around 600,000t of copper rod in total, 70% of which was used in high-end industry.

Asian Metal: It is usually the bullish season for copper rod consumption in May. However, most copper rod producers said that their orders declined in May, and operating rates decreased. What are your thoughts on the situation?

Liao: Newly fixed investment growth has been declining, and the real estate market is not performing well. Meanwhile, liquidity is tight, and demand from end-users remains sluggish. Therefore, demand for electrical wire and cables has weakened, and copper rod consumption in 2015 may shrink compared with 2014.

The real estate market remains stagnant, and concluded deals continue to fall, down by over 40% month-on-month and year-on-year. Meanwhile, many people have come into the stock market, which has influenced the consumption of air-conditioners, refrigerators and automobiles.

In April, the sales volume for air-conditioners reached 8 million in China, up by 10.4% year-on-year and down by 8.6% month-on-month. However, the terminal sales were disappointing and decreased year-on-year. Moreover, the terminal sales in Jan-Apr also declined year-on-year. It indicated that consumption was becoming exhausted. In late April, the purchasing activity started to slow down, and some producers with famous brands started to lower production.

Chinese refrigerator output reached 7.5 million in April, down by 3.4% year-on-year and down by 6.5% month-on-month. Exports had stopped falling and were around 2.18 million, up by 2% month-on-month. The domestic sales volume reached 5.32 million, down by 5% year-on-year.

Additionally, aluminum will be used in the enameled wire industry instead of copper, and more producers increased their equipment for enameled wire.

Asian Metal: The State Grid said that its investment would increase by 9% in 2015, below the level in 2014, and demand from electrical wire and cable plants shows no signs of getting better. Will things get better in the second half of 2015?

Liao: Investment from the State Grid may increase by 9% in 2015, but this mainly refers to high or ultra-high transmission lines, which largely use aluminum. The State Grid usually has an auction once every quarter, but there was only one each time until this year. It is estimated that there may be two auctions this year. Impacted by the slow growth in newly agreed investments, the slack real estate market, tight liquidity and so on, demand for power cables has become weak, and it is not looking optimistic in the second half of this year.

Asian Metal: The copper rod market still has many problems, like poor demand, low profit margins and so on, and many producers are seeing meagre profits. However, the output and sales volumes at your company are still on the rise. How do you deal with these problems?

Liao: In fact, Nanjing Huaxin’s sales volume was not at its highest in 2014, that was in 2011. In 2011, our copper rod sales volumes reached 380,000t, and Walsin’s total sales volume was 600,000tpy. However, due to the finical crisis in Europe, we reduced production to avoid capital risks in 2012. We continued supplying high-quality copper rod to consumers and built a steady relationship with our customers. Thanks to our customers, we’ve been able to keep the sales volume at 300,000t in the past three years.

Asian Metal: Chinese copper rod capacity has continued to expand over the past few years, and capacity is surplus, with the main plants running at low operating rates. Nevertheless, there will be 2 million copper rod projects coming on stream in 2015-2016. What are your thoughts about this?

Liao: In the past few years, Chinese new copper rod capacity has increased at the speed of 100,000t every year, and many producers imported the production line CCR with a total capacity of around 6 million. At the same time, copper rod projects were being built and the newly-built total reached 200,000tpy. However, some producers had to stop construction or operations due to a lack of money or low quality. As far as I know, the utilization rate of copper rod (CCR) in the first quarter of 2015 was around 56%.

As with steel mills, the copper rod market saw a surplus in China, and many companies are in deficit. Huaxin is still the leading company in terms of efficient management. There are some new copper rod enterprises, some of which come from copper refineries or electrical wire companies. Some producers are paying attention to the nature of the copper financials. What we do first is risk management.

Asian Metal: On 1 Jan 2015, China started to adopt 9% export rebates for copper bar, copper rod and so on. However, Chinese copper rod producers do not benefit from it, and exports remain at a low level. Does Huaxin have any plans to export the material in the future?

Liao: China needs to import a lot of copper every year. Compared with the export situation in Taiwan and South Korea, copper rod producers in China lack policy advantages. In addition, copper rod producers in China haven’t had the export opportunities over the years and are short of talent in terms of international trade, so they have difficulty in trading with buyers from Southeast Asian countries. However, with the growth in demand from countries in Southeast Asia, copper rod exports will be an available option if the US dollar is firm and RMB depreciates in the future. In the past few years, Nanjing Huaxing has always had international trade, and Taiwan Huaxin also conducts business with factories in Southeast Asia. If the export market improves, Nanjing Huaxin won’t pass up the chance.

Asian Metal: So far this year, spot copper prices have mainly fluctuated in the region of RMB43,000-46,000/t in China, even though the government has carried out many favorable policies. Obviously, the prices lack any rising momentum. How is the market trend in H2 looking?

Liao: The United States has wound up the six-year quantitative easing monetary policy and started to increase interest rates. However, Japan and Europe have introduced unprecedented monetary easing policies. In Asia, China and India also followed suit, and the Chinese economic growth rate may be 6.8% and 6.7% respectively in 2015 and 2016, which indicates that it is slow moving. China is making structural adjustments, and services will replace manufacturing and the real estate market to become the driving force of economic growth. Additionally, the respective growth rates for worldwide copper mine exploration may be around 7.9% and 7.0% in 2015 and 2016, leading to an abundant supply in the copper market, and that is why copper prices lack the momentum to rise. It is said that 30% of the world’s copper mines are starting to suffer losses. In addition, China has started to downgrade interest rates and the reserve. All these factors will influence the copper price trend.