At the beginning of this year, copper prices rose rapidly at one point, drawing bullish views from both domestic and overseas investment banks and institutions, including Goldman Sachs and Citigroup. Recently, copper prices have shifted to a volatile consolidation trend. At the 2019 China International Copper Market and Development Summit held last weekend, copper industry experts said that copper prices may continue to face adjustment pressure in the short term, but there is also support. From an industry development perspective, the copper industry is generally operating steadily, but challenges from factors such as overly rapid expansion of smelting and processing capacity are increasing. New energy vehicles are the most positive segment among the six major downstream application fields of copper in recent years.
Shang Fushan, vice president of the China Nonferrous Metals Industry Association, said that in recent years, China's copper industry has generally operated smoothly, with stable growth in product output and generally improving economic benefits. In 2018, the copper content of domestically produced copper concentrate reached 1.506 million tonnes, up 3.91% year-on-year; refined copper output reached 9.0286 million tonnes, up 7.95%; copper product output reached 17.1554 million tonnes, up 14.51%; copper enterprises above designated size achieved main business revenue of 1,747.895 billion yuan, up 10.38%; and realized profits of 39.620 billion yuan, up 4.31%. Since the beginning of this year, the industry has continued to maintain a stable and improving trend. From January to February this year, the copper content of copper concentrate output was 221,000 tonnes, up 5.86% year-on-year; refined copper output was 1.3395 million tonnes, up 6.3%; and copper processed product output was 2.019 million tonnes, up 14.62%.
However, Shang Fushan said that the many challenges facing the development of China's copper industry should also be recognized. First, the pace of expansion of domestic copper smelting and processing capacity is still too fast, making the task of supply-side structural reform in the industry arduous. Second, the conversion of old and new growth drivers is slow, and innovation-driven development remains a prominent shortcoming. Third, environmental pressure is increasingly prominent, especially the tightening of policies on scrap copper imports, which has a profound impact on the raw material import structure and industry development.
Regarding copper prices, Li Li, senior analyst at Jinrui Futures, said that although expectations for the macroeconomy are not optimistic, from the perspectives of expectations for improved liquidity and economic stabilization, copper prices may still face some pressure in the short term, but the downside is limited. Processing fees for blister copper are now relatively low, and there are also uncertainties on the scrap copper side. The supply side will continue to provide neutral-to-strong support to the fundamentals.
Li Li also said that the tax reduction for the copper smelting segment is roughly estimated at about 600 million yuan, accounting for about 3.5% of the industry's net profit. For the copper tube segment of the copper processing industry, the tax reduction is expected to exceed 500 million yuan. For industries with relatively high gross margins or low net margins, tax cuts will have a significant effect on boosting profits.
Xu Hong, President of the Asia-Pacific region of the International Copper Association, said that the transportation sector is the only one with a very positive outlook among the six major downstream application sectors for copper in recent years. From traditional vehicles to new energy vehicles, copper consumption has huge growth potential. A traditional car may use about 25 kg of copper, while a new energy vehicle uses 45-50 kg. Adding the corresponding infrastructure, such as charging piles and other supporting facilities, the copper usage per vehicle may increase from the original 25 kg to 70-90 kg. In the future, the contribution of new energy vehicles to copper will be very substantial.