COVID-19 outbreak weighs on Chinese copper market

Asian Metal: Mr. Chen, thank you for accepting our interview. Would you please first give us a brief introduction of your company?

Mr. Chen: Thanks for your invitation. Founded in 2013, Anhui Tianda Copper Corporation Limited is invested by Anhui Tianda Group, and is located in Chuzhou, a city of unique geographical advantage in the Yangtze River Delta and Nanjing metropolitan area. Tianda Copper imported a CONTIROD production line from Germany's SMS Meer GmbH and a MSM85 twin wires Rod Breakdown Machine from Niehoff GmbH. Specializing in the production and sale of ￠ 8mm copper rod and various types of bare and tinned copper wires above ￠ 0.04mm, Tianda Copper boasts an annual production and sales volume of 150,000 tons, with products widely used in electricity, electronics, automobile, telecommunications, nuclear power, aerospace, military and other fields. Our products have been sold to many provinces such as Anhui, Jiangsu, Shandong, Hunan, Hubei, Henan, Hebei, etc.

Asian Metal: Chinese major copper rod producers have been adding and expanding production capacity over the years. Do you have any plans for capacity expansion or other development plan in recent years?

Mr. Chen: We've learned that some major copper rod companies have been expanding production capacity in recent years, so domestic market is relatively saturated. We are not planning for any capacity ramp-up at the moment but we would continue to optimize industry structure and extend deep processing industry chain based on our current capacity for copper rod and wire to provide better services for our downstream clients.

Asian Metal: The quality of copper rod made out of copper scrap has been improved significantly over the years, and the product also has a price advantage over copper rod made from copper cathode. How do you think the latter should deal with the competition from the former?

Mr. Chen: Since Aokai Cable scandal, downstream customers have been demanding higher-quality copper rod, and the quality of copper rod made from copper scrap is still somewhat inferior to that made out of copper cathode which contains fewer impurities. In terms of the basic parameters for copper rod, such as electrical conductivity, elongation, copper content, the performance of copper rod made from copper cathode is much better. Additionally, from what we have learned from downstream customers, the power consumption is lower in processing copper rod made out of copper cathode. In conclusion, there is a clear distinction between these two kinds of copper rod in terms of application and customer group. So, we would continue to give full play to our product advantages and provide better services to targeted customers to enhance customer loyalty and explore new markets.

Asian Metal: In late 2019, State Grid announced stricter control over investment in power grid. How do you think this will affect downstream demand for copper rod in 2020?

Mr. Chen: With this announcement, the investment in power grid will certainly be affected in 2020, but I believe the impact would be limited. Firstly, the power grid upgrade in central and west China is still underway this year as China ramps up efforts to support development in that region. Secondly, the power grid transformation in the rural area is still ongoing, which also needs a certain amount of investment, despite most of the work was completed last year. Meanwhile, the power-grid construction associated with the "coal-to-electricity" project and clean energy heating project in northern China would also be advanced. In addition, insiders generally believe that China will launch more infrastructure construction projects like new energy and PV projects in 2020 amid the current epidemic to stimulate economic growth. The above-mentioned factors are expected to offset the negative impact from the power grid investment restriction on copper rod consumption, so we remain relatively optimistic about the outlook for copper rod demand in the domestic market this year.

Asian Metal: In light of the overcapacity of copper rod in China, coupled with fiercer competition, how to you think can companies stand out from their competitors?

Mr. Chen: For enterprises, one way is to provide high-quality product with competitive price, and a more important way is to provide customized service targeting downstream companies. For copper rod companies like us, we could consider providing, for instance, financial service to our downstream clients. Hedging service is also an option for some big customers or when the market fluctuates violently. Additionally, we could offer services such as one-stop shopping for customers with multiple needs.

Asian Metal: China's copper industry was hit hard by the COVID-19 outbreak. What do you think are the main impacts? When do you think the copper rod industry will return to normal?

Mr. Chen: The impact on the whole copper rod industry has been relatively huge since the Spring Festival. Downstream producers of enameled wire and electric wire and cable generally delayed the resumption of production, which led to rather weak demand. Besides, the strict transportation curbs also caused a great difficulty for us to purchase raw materials or sell copper rod. But the epidemic control and economic development are done simultaneously now, with the gradual resumption of work and production seen in the whole industry chain from February 24. Therefore, we forecast an obvious improvement in the industry situation in March and copper rod companies are expected to resume normal operation relatively soon.

Asian Metal: The on-and-off trade tension between China and the United States nearly dominated the price trend of bulk commodities like copper in 2019. How do you think the trade war would affect copper industry in 2020?

Mr. Chen: The world's two largest economies came to the phase one trade deal and reached consensus on some major issues on January 15, 2020. China-U.S economic and trade relation is the key to the overall stability of the world economy. The signing of the phase one deal has greatly eased the trade tensions globally and has reduced uncertainty for global economic development. 2020 is an election year for the United States, so I don't think the trade war would escalate any further this year when U.S. needs stability and growth. However, the trade friction would still exist and the process of reaching a final agreement would be tortuous, with the possibility of emergency. But it should eventually evolve for the better, so we remain relatively optimistic about the trade war and its impact on copper industry in 2020.

Asian Metal: What's your prediction on treatment charges (TCs) for copper rod and copper price trend for 2020?

Mr. Chen: With the increasing production capacity and fierce competition, the current TCs are at relatively low levels. The profits are also rather thin and some copper rod producers even suffered losses. Besides, the costs of labor, environment protection and transportation are on the rise, not to mention the great financial pressure, so we believe TCs for copper rod are hardly likely to drop in 2020 and would stay unchanged at low levels, with the possibility of slight rebound in some months.

In the first two months of 2020, copper demand from domestic end consumers weakened sharply affected by the Spring Festival as well as the impeded resumption of work and logistics operation amid the epidemic outbreak. Consequently, copper inventory at SHFE and bonded warehouse increased substantially, with SHFE copper inventory exceeding 300,000t, a historical high. >From this perspective, copper prices are still under downward pressure in the short term. But I personally believe the decline wouldn't be huge as copper price is already at a three-year low and the inventory of sulfuric acid is high at domestic smelters, many of which have begun to cut production or bring forward maintenance, adding to uncertainty over the increase in supply in H1 2020. With copper-related companies successively resuming operation in March, the downstream demand is expected to pick up gradually, along with the decrease in copper cathode inventory. Therefore, copper prices are expected to drop before rebounding this year. The impact from the epidemic is just temporarily and we are still relatively optimistic about copper price trend in H2 2020.

Asian Metal: Thanks again for your time, and we wish Tianda Copper a bright future!