Cable industry is facing difficulties recently

Generally speaking, the pricing power structure of the non-ferrous metals industry is always stronger upstream than downstream. However, in our country's wire and cable industry, this rule was broken and the wire and cable industry became a "sandwich layer."

Loss of pricing power. As most users of wire and cable in China are concentrated in monopolistic industries and large-scale projects such as electricity, communications, and railways, the market is seriously out of balance and it is impossible to maintain the fairness of market transactions and the rationality of the distribution of benefits. Wire and cable industry is pricing There is almost no right to speak on the formation of power.

Systemic risks within the industry are large. Due to the strong pressure of downstream companies, various risk-revenue allocations are too biased towards the national monopoly industries. Throughout the industry, buyer performance has become particularly strong because of its special status. This is reflected not only in price but also in some commercial credits. The strong terms, restrictions, minimum bid prices, and write-offs of downstream users have increased the overall credit risk in the industry, which has caused resistance in the industry's concentration and scale.

Market competition is disorderly. The homogenization competition among cable companies is extremely fierce. This is closely related to the homogenization of cable technology and production methods. In a large number of manufacturing companies, more than 5% of their annual profits will be used for technology development and product development, but such situations are rare among cable companies. Cable companies blindly followed suit to expand production capacity, resulting in a large number of repeated investment, exacerbated the market vicious competition, a serious excess of low-end production capacity, and high-end product market is in short supply.

In addition to the industry chain's own factors, the external resistance faced by cable companies cannot be underestimated. Among them, the cost factor and macro factors occupy the mainstream, coupled with the imperfect market guidance mechanism, which makes the industry lack of suitable soil for transformation.

Cost factors compress the profits of the industry. The cost of raw materials in China's wire and cable industry accounts for more than 80% of the total cost, and its main cost expenditure is concentrated on two major metals, copper and aluminum. Given the weak pricing power in this industry, usually a 5% increase in raw material prices results in a 4% reduction in product gross margin. The total cost of raw materials in the US wire and cable industry accounts for only 69%, and Japan is even lower, reaching about 70%.

*** Strengthen the size of the export. Similar to China's traditional export processing companies, wire and cable companies are also facing the same problem. The standardized products produced in accordance with the national standard have long depended on exports in the past, mainly supplying European and American countries and other major developing countries. As *** against the US dollar continues to strengthen, China's cable export industry is facing heavy losses. Of course, this is directly related to the fact that foreign trade processing companies do not attach importance to the management of market risk in history.

There is no reasonable market guidance mechanism. In the process of cable industry development planning, government authorities lacked more systematic considerations. In the past decade, the cable industry’s policy has focused on the introduction of new investment projects, emphasizing the scale of development, GDP growth, and tax revenue growth, and has promoted the blind development of cable companies around the country. The policy is not enough for the support of new technologies and processes in the cable industry. The soft environment for fostering long-term competitiveness of the industry needs to be strengthened.

As the main destination of refined copper consumption, the development bottleneck of the cable industry has severely restricted the room for copper prices to continue to rise. At the same time, it also makes refined copper consumption further into a long period of adjustment. China has now spent a period of economic growth driven solely by investment growth and capacity replication. The growth point of the next economic cycle may be far from replicating what the previous development model can achieve. Other developing countries and regions, such as India and African countries, although their imagination is extremely large, it will take a long time to implement large investments and capacity expansion.

The downstream industries of refined copper consumption in China need time to change their industrial development methods, while other developing countries are unlikely to have large-scale capacity expansion in the short-to-medium term. Together, these two factors determine that it will be inevitable that copper prices will remain sluggish for a long period to come.