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On June 28, Dong Mingzhu, chairman and president of Gree Electric Appliances, responded to the impact of rising copper prices on the gross profit of enterprises this year at the 2023 annual general meeting of shareholders of Gree Electric Appliances: "We have learned that some air-conditioning companies have begun to use aluminum instead of copper as a raw material. At present, if aluminum is used instead, its durability and stability are not guaranteed. Therefore, before being 100% sure, Gree will never use aluminum instead of copper. ”
Dong Mingzhu said: "Quality is always the first criterion, not cost first. Only under the same conditions of quality can we consider the cost issue. This year's copper price increase has put pressure on Gree, but if you want to be a good company, you must be responsible for the country, shareholders, and employees. ”
The main reason why air conditioning companies use copper as a raw material is that copper has good thermal and electrical conductivity. This has led to a wide range of applications in the manufacture of components such as heat exchangers and pipes in air conditioners. The thermal conductivity of copper allows heat to be conducted more efficiently to the radiator components of the air conditioner, thus improving the heat dissipation efficiency of the air conditioner. In addition, copper is also a good conductive material, so copper wires and cables are also widely used in the electrical components of air conditioners.
However, the recent shortage of raw materials at the mine end, the decline in smelter TC and the serious profit loss have caused copper prices to continue to rise and hit a new high in the past two years. It not only puts pressure on midstream smelters and downstream copper processors, but also makes industrial enterprises that use copper face the challenge of rising costs. A person from a smelting company said, "At present, in addition to making money from mines, the entire industry is at a loss", "Starting from next year, the entire smelting industry will lose 100%, and the difference is only in the loss of more and less" In this context, Gree Electric insists on using copper as a raw material, which undoubtedly needs to bear greater cost pressure.
Dong Mingzhu's statement and the rising copper price have highlighted the pressure and challenges of the current raw material market. When choosing raw materials, enterprises must strike a balance between quality and cost, and at the same time, they also need to actively respond to the development of the entire industrial chain.
Panoramic combing of the copper processing industry chain
The copper processing industry is located in the middle and lower reaches of the entire copper industry chain. The upstream of the industry includes copper mining and smelting, while the midstream is the processing of copper materials such as copper rods, copper plates, copper pipes, and copper wires. Copper processing products are widely used in many fields such as electric power, home appliances, transportation, construction and electronics, and the output of these industries directly affects the demand for copper processing products and is closely related to the copper processing industry. Therefore, the development status of the downstream industry directly affects the production and operation of the copper processing industry.
From 2012 to 2021, the domestic copper price index showed a fluctuating trend
According to the data of China's hardware and electromechanical index, the domestic copper price index showed a fluctuating trend from 2012 to 2021. During this time, the copper price index has been in a state of flux. From 2012 to 2016, the copper price index decreased year by year, from 96.88 in 2012 to 71.32 in 2016. After 2017, the copper price market was not very volatile, and the price index in 2020 was 75.86. However, from 2019 to 2021, the price of copper in mainland China continued to climb, affected by the increase in raw ore prices. As of the end of August 2021, the copper price index reached 100.9, which is at a high point in recent years.
Analysis of copper imports in mainland China
From 2017 to 2021, the mainland's copper import volume and import value fluctuated as a whole. In 2021, China's copper imports reached 566,200 tons, an increase of 41,200 tons from 2020, while the import value of copper products was US$7.705 billion, a nominal increase of 23.85% over the same period last year.
As an important industrial raw material, the rise in copper prices has had a wide impact on the downstream industry, Yang Chengxiao, director of the Minmetals Securities Research Institute, believes that this round of observation, the area with the greatest impact on the industrial chain radiation is the field of new energy. The new energy sector mainly includes new energy vehicles and photovoltaics, and the proportion of copper has risen to 10%. In the past, copper was mainly used in construction, infrastructure, industrial manufacturing and transportation, and the consumption structure was relatively stable. However, since 2016, the demand for copper in the construction sector has begun to decline as the area of real estate completions has decreased, while the rapid growth of demand for copper in areas such as new energy vehicles and photovoltaics has somewhat inhibited the decline in total copper consumption in the infrastructure and transportation sectors.
According to a research report published by China Securities Securities, the trend of copper prices is more affected by demand than supply, and is closely related to the manufacturing prosperity of emerging countries driven by global credit conditions. Global liquidity is a good leading indicator to look at copper prices. Although copper prices adjusted in May, the end of overseas small-cycle expansion does not mean that prices have peaked and fallen. As a typical recovery variety, copper is important in pricing upward inflation expectations. Copper prices have a cyclical pricing opportunity, provided that the global credit cycle begins, and when the Fed embarks on monetary easing, this opportunity is not too far away.
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For more research and analysis of this industry, please refer to the "Market Prospect and Investment Strategic Planning Analysis Report of China's Copper Processing Industry" by the Prospective Industry Research Institute
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