At the 2024 (19th) SMM Copper Conference and Copper Industry Expo - 2024 SMM Strategic Consulting Summit Forum - Discovery of Overseas Investment Opportunities in the Copper Industry Chain jointly organized by Shanghai Nonferrous Metals Network (SMM) and Shandong Hengbang Smelting Co., Ltd., Wang Hemeng, SMM Consulting Manager, and Fei Changyun, Senior Consulting Manager of SMM, shared resource guarantee and global layout - the discovery of investment opportunities in the new stage of Chinese enterprises going overseas.
Copper industry chain
Copper industry chain
In 2023, the concentration of the upstream copper smelting industry in the global copper industry chain will be higher than that of the midstream copper processing and terminal industries
Similar to the global pattern, in 2023, the concentration of the upstream copper smelting industry in China's copper industry chain is significantly higher than that of the midstream copper processing and terminal industries
In 2023, the gross profit margin of upstream copper smelting in the global copper industry chain will be significantly higher than that of the midstream copper processing and terminal industries
In 2023, the upstream copper smelting gross margin of China's copper industry chain will be the highest, mainly due to the shortage of copper ore resources in the mainland
Copper resource potential in emerging markets along the Belt and Road
Many of the Belt and Road countries are rich in mineral resources and are the world's main suppliers of mineral raw materials.
According to public data, among the four major metallogenic areas of the global metallogenic unit, the Belt and Road countries have a total of nearly 400 super-large and large-scale mineral deposits and nearly 200 kinds of mineral resources. Among them, iron ore reserves account for 42% of the world's reserves, copper accounts for 18%, and gold accounts for 21%.
Resource:
• The regions along the "Belt and Road" have rich mineral resources, with copper ore reserves reaching 130 million tons, accounting for 18% of the world's copper ore reserves.
•The cooperation between countries along the Belt and Road in the field of mineral resources has strong complementarity, such as gold, copper, cadmium, nickel and other minerals and strategic emerging minerals that are in short supply in the mainland, which are the advantageous resources of some countries in the "Belt and Road" region. The Belt and Road Initiative is conducive to optimizing the allocation of energy and mineral resources, rationally utilizing and releasing its potential, improving the regional production and supply pattern, and ensuring the security of mainland resources and energy.
Intent & Policy:
•The mainland has promoted the "Belt and Road" cooperation through the introduction of new policies and measures, and more and more countries have aligned their development strategies with the mainland's initiatives, including Russia's "Eurasian Economic Union", Mongolia's "Steppe Road", Vietnam's "Two Corridors and One Circle", Cambodia's "Four Corners" strategy, the European Union's "Juncker Plan", and the industrialization strategy of African countries.
• At the same time, countries and regions in the "Belt and Road" region are also adjusting their mining policies, stabilizing the mining order, enhancing the attractiveness of mining investment, and signing cooperation agreements with the mainland.
•With the support of national policies, exchanges and cooperation between China and countries and regions along the "Belt and Road" have become increasingly frequent and deeper, and many landmark cooperation projects have been implemented, opening up a variety of effective ways to release the potential of energy and mineral resources.
In recent years, with the continuous improvement of the country's comprehensive national strength, the acceleration of the construction of the "Belt and Road" and the acceleration of international production capacity cooperation, the mainland's foreign investment policy system has been increasingly improved, and the pace of "going out" investment by enterprises has accelerated
Topic 1: Copper ore end
Against the backdrop of the politicization of global resource issues, China's major strategic metal supply chains are facing challenges
•The dependence of copper ore on foreign countries has increased, the import volume has been increasing, and the proportion of advantageous resources is small. More than two-thirds of the mainland's strategic mineral resource reserves are in a disadvantageous position in the world. In addition, the per capita resource possession of metal resources such as cobalt, chromium, manganese, nickel, iron, and copper is much smaller than the world average.
• With the increasing demand, the scarcity of mineral resources such as iron and copper is increasing. The main strategic metal mineral resources in the mainland are of poor quality and scattered, few large mines, complex ore types, mainly poor ores, few rich ores, many symbiotic components, difficult to mine and select, difficult to develop and utilize, high cost, and lack of competitive advantage in the world.
•The security of the metal supply chain is facing challenges, and the great power competition in the field of critical metal minerals has increased geopolitical risks.
Compared with other countries rich in mineral resources, China's copper resources are seriously insufficient
Over the past decade, China's self-sufficiency in copper concentrate has continued to decline, and the imbalance between supply and demand has gradually deepened.
Chinese copper mines in Africa are mainly concentrated in the Democratic Republic of the Congo (DRC).
In addition, Chinese companies are also investing in copper mines in regions other than Africa, such as South America, Asia, and Oceania.
SMM China Electrolytic Copper Forecast Price vs. Actual Price:
Topic 2: Copper processing ends
China's production and sales of copper processing materials rank first in the world, accounting for about 80% of the world's total
►SMM analysis: The global copper processing industry is mainly distributed in Asia, and the production capacity of copper processing materials in Asia accounts for nearly 90% of the world's total, and the production capacity is mainly distributed in China, South Korea, Japan and other countries. In the past 20 years, China's production and sales of copper processing materials have ranked first in the world, of which the output contribution from 2019 to 2023 is gradually approaching 80% of the world's total, and the consumption is close to 70%.
China's copper semi-finished products industry is facing a market pattern of oversupply
COVID era: From 2020 to 2023, the pandemic led to a contraction in downstream demand and production of copper semi-finished products. China's economic recovery in 2023 has been slower than expected, leading to an exacerbated surplus of copper semi-finished products.
Post-COVID era: From 2024 to 2030, China will continue to carry out supply-side reforms in the future, and some low-end copper rod enterprises will be cleared by the industry, the overall surplus situation will be alleviated, and the demand-side new energy-related industries will drive the growth of copper downstream demand in the future.
Characteristics and problems faced by the copper processing industry
The development of the industry presents characteristics: the growth rate of production has begun to decline and is in the low-speed growth channel; the international production capacity layout has been formed (Hailiang, Jinlong, Jintian, Bowei, Tongling); the development of the industry is tending to be concentrated; the profit margin of the industry is low, the debt ratio is increasing with the assets and operating income; the capital is intensive and the market radius is limited.
Problems faced by the development of the industry: insufficient competitiveness in the international market, high-end products still rely on imports, limited production capacity output, insufficient process technology control and management capabilities, continuous disorderly expansion of production capacity, too traditional operation model, too slow to adapt to market changes, too simple market risk control methods, and insufficient understanding and utilization of the financial attributes of copper by some enterprises.
The industrial layout of copper intermediate processing materials of Chinese enterprises has reached Europe, America, Southeast Asia and other countries
Copper foil is mainly used in electrically conductive, thermally conductive, and electromagnetic wave shielding properties. According to the main applications, it can be roughly divided into two categories: printed circuit board applications and non-printed circuit board applications (such as lithium battery anode carriers, shielding materials, etc.).
Copper pipe has good electrical conductivity, thermal conductivity, conductive fittings for electronic products and the main material for heat dissipation fittings, and has become the first choice for modern contractors to install water, heating and cooling pipes in all residential commercial buildings. Copper pipe has strong corrosion resistance, is not easy to oxidize, and is not easy to react with some liquid substances, and is easy to concave and bent shape.
Copper tubes: As the world's largest producer of copper tubes, China is the world's leading manufacturer of copper tubes. The industry concentration is high, and the pace of overseas expansion of leading enterprises to improve the company's ability to resist risks
►Leading companies to accelerate overseas production expansion and improve the company's ability to resist risks
China's copper tube processing industry has a strong global comparative advantage, and China is the world's largest copper tube producer and consumer, and China's copper tube processing industry has a strong global comparative advantage. About 10% of domestic copper pipes are exported overseas.
The overseas layout enables copper pipe processing enterprises to reduce the risk of anti-dumping sanctions, reduce the losses caused by exchange rate changes, and improve the company's ability to resist risks.
Domestic leading enterprises have also invested in overseas factories or mergers and acquisitions, and actively laid out production, supply and sales channels in overseas markets.
For example, Jinlong Copper Pipe has built factories in the United States and Mexico, with an overseas production capacity of 120,000 tons/year, and Hailiang has set up bases in Vietnam, Thailand, Europe and the United States through self-construction and acquisition, and the company's overseas production capacity will reach 343,000 tons/year after the completion of the American base.
Copper foil: domestic capacity expansion alleviates the supply shortage, but the market is developing rapidly, and enterprise competition is intensifying
►Domestic industry status: The capacity expansion of the domestic copper foil industry has eased the supply shortage, but the market has developed rapidly and the competition of enterprises has intensified
In the next few years, the domestic lithium battery copper foil industry will be in the stage of volume increase and price contraction or volume increase and price flattening, and the competition for enterprise competition will intensify, and the competition for pattern and share will be more intense.
In 2022, the rapid expansion of the production capacity of the domestic copper foil industry has alleviated the tight supply situation of the domestic lithium battery copper foil industry, and the processing fee is on a downward trend. In 2022, the processing fee of lithium battery copper foil will drop by about 30%.
With the further increase in the release of domestic copper foil expansion capacity, copper foil processing fees will continue to be in a downward or maintenance cycle.
►Status quo of foreign markets: The foreign new energy market is developing rapidly, and the demand for copper foil is difficult to meet
According to SMM's forecast, the global sales of new energy vehicles will reach 52.12 million units in 2030, and the penetration rate of new energy vehicles will continue to increase and exceed 50% in 2030.
With the implementation of the U.S. IRA, leading car companies such as Tesla are driven by supply-side innovation, and the U.S. new energy vehicle market is expected to grow significantly, which will have an impact on the competitive landscape of the global new energy vehicle industry chain.
The battery production capacity of Europe and North America is ambitious, but the local lithium battery copper foil production capacity is relatively scarce, which has led foreign competitors to increase the development of lithium battery copper foil business, and build copper foil factories in Southeast Asia, Europe and the United States to support the new expansion of domestic battery companies.
►China's export challenges: The localization of supply chains in Europe and the United States has increased the export challenges of domestic lithium battery products
In the context of de-globalization, China's copper foil and battery product exports face the challenge of high tariffs from the European Union and the United States, which weakens the competitive advantage of Chinese products. At present, China's copper foil exports to the EU are subject to 5.2% tariffs, and exports to the United States are subject to 26.3% tariffs, and battery exports from China to the United States are subject to 25% tariffs on top of 2.7%, totaling 27.7% tariffs. The global competition in the new energy industry chain is intensifying, and countries are expected to increase their support for their own industrial chains, which is expected to become one of the main lines of industrial competition.
A number of power battery companies in China have started a new round of overseas expansion, and overseas factories continue to heat up
Magnet wire: With the end of the epidemic, stimulated by the recovery of traditional industries and the new energy vehicle industry, the supply of the world's major copper magnet wire producers will increase year by year, with China, the United States and Europe being the three major copper magnet wire supply regions, with a total supply of 85% of the world's total in 2023
►SMM analysis: Affected by the growth of the downstream demand market around the world, especially the promotion of the development of the new energy vehicle industry, the supply of copper magnet wire around the world will show a continuous growth trend in the next 10 years; China Jingda 300,000 tons, China Jintian, China Great Wall are 180,000 tons; due to the limitation of production technology, China's current copper magnet wire products are mainly in the middle and low end, while the product structure of copper magnet wire in foreign developed countries is mainly in the middle and high-end.
Magnet wire: Driven by the steady development of traditional downstream industries such as current collectors and rail transit and the rapid development of the new energy industry, the global demand for copper magnet wire will grow steadily in the next 10 years, with China, the United States and Europe being the main consumption regions
►SMM analysis: According to the main regions, the global downstream demand for copper magnet wire is mainly distributed in China, the United States, Europe, Japan and other places, of which the top three regions account for more than 80% of the total consumption. Driven by the steady development of traditional downstream industries such as power collectors and rail transit and the rapid development of the new energy vehicle industry, the demand for copper magnet wire around the world will continue to grow in the next 10 years. China, Japan, South Korea, Central Asia and other countries are led by the growth of demand for new energy vehicles, while Central Asia and other countries are driven by the growth of infrastructure and power grid demand for magnet wire. Among the above major copper magnet wire consumption areas, Europe is the third largest consumption area, and there will be a shortage of copper magnet wire in the next 10 years.
As a net exporter of copper magnet wire, China's imports are mainly high-end products, and exports are mainly low-end products. In the future, with the improvement of China's copper magnet wire production technology, the self-sufficiency rate of high-end products will increase, the import volume of copper magnet wire will decrease year by year, and the export volume will continue to rise.
Topic 3: Scrap copper ends
Major countries in the world have released timelines for achieving carbon neutrality/carbon peak plans
The development of recycled metal industry policies varies in different regions of the world, with Southeast Asia focusing on the import and export of scrap, China focusing on the overall planning of the recycled metal industry, and the EU policy gradually refining
China's recycled metal industry is in a critical period of development, with both opportunities and challenges
China's copper scrap market continues to be undersupplied, with strong demand from downstream smelters and manufacturers but limited domestic scrap supply
China's copper scrap policy is gradually tightening, and recycled metal companies are willing to go overseas
►Research on recycled metal companies going overseas: According to SMM research, most of the recycled metal companies in the market are paying attention to the overseas investment environment, and some companies have already built factories overseas, or sent goods to overseas for processing and then transferred back to China. According to public data, China's copper scrap imports from Southeast Asia have soared as China's copper scrap import policy has become more stringent, with shipments from Thailand, Malaysia, the Philippines and other countries increasing by more than 100%. The company said that through a large number of field visits and research, Southeast Asia is very suitable for enterprises to serve as a transit point for overseas copper scrap imports, mainly because there are many local Chinese, it is easier to integrate into the local culture, and the proximity to the port is convenient for transportation.
There are three reasons for Chinese recycling market players to go overseas: to stabilize the copper scrap supply chain, to support downstream globalization, and to export advanced technologies.
In order to ensure the supply of scrap metal, an upstream raw material, China's leading recycling company has set up subsidiaries around the world
In the automotive industry, for example, Chinese recyclers are already operating overseas to align with their carbon neutrality plans
Outlook for investment opportunities in Southeast Asia
Regulations on the Administration of Import and Export of Solid Waste in Various Countries (Partial):
Malaysia: Malaysia is the largest waste importer in Southeast Asia and has a relatively well-established legal system for waste management. According to the law, importers and exporters are generally required to submit application forms, permits, sources of waste, importer and exporter contracts, contracts with the owner of waste treatment/recycling facilities, data of appraisal agencies, bank guarantees, etc., in addition to certain qualifications. In accordance with the Environmental Quality Regulations, the Malaysian government's environmental authorities manage waste from generation to collection, transportation and final disposal. Malaysia was the first country in the world to privatize solid waste management, with four private consortia selected from five regions of the country to be privatized and contracted by the government to collect and dispose of solid waste.
Viet Nam: Viet Nam's Environmental Protection Law (2005) establishes the principles of solid waste management and recycling, while the Regulations on Permitted Wastes as Raw Materials for Production provide a list of renewable wastes that are allowed to be imported. Vietnam prohibits the import of solid waste, but allows the import of scrap. Every year, Vietnam imports a large amount of scrap steel, waste plastics, waste paper, etc., to make up for the shortage of raw materials for industrial production. Waste management in Vietnam involves environmental protection departments, industry and trade departments, and customs at all levels, which update the list of wastes allowed to be imported and adjust the corresponding management policies according to the actual situation of domestic waste imports. Vietnam stipulates that different fines will be imposed for violating the waste import law, importing illegally and causing environmental pollution, and importing hazardous waste.
Risks of going to sea:
The recycling industry in Southeast Asia is becoming more and more stringent
• Vietnam: The government is planning legislative action to address scrap imports. According to the report, Vietnam will re-examine the legal documents on the management of scrap imports to make necessary amendments.
• Thailand: Halt the import of 432 categories of electronic solid waste and plan to ban the import of plastic waste in the next two years. Thailand will also become another country in 2018 to ban the import of foreign e-waste in addition to China.
• Malaysia: Prohibit the import of any solid waste that cannot be properly recycled and does not comply with the Environmental Quality Act.
There may be problems with labor hiring
• Local residents in Southeast Asia have low willingness to engage in the recycled metal industry and high salary requirements, and some companies take risks to hire undocumented foreign workers in order to reduce costs, but this practice is risky, and if it is found by the local government, it will be punished.
The quality of overseas processing may be worrisome
• Southeast Asian countries lag behind China in terms of production technology, dismantling equipment and management methods. For example, the copper rice that was brought back was mixed and loaded with each other regardless of grade, resulting in a lot of copper rice being difficult to use due to confusion. In addition, in the process of dismantling scrap copper, they will only disassemble the wires, and cannot disassemble other circuit boards, motors and other equipment, and the machinery and equipment are old and the dismantling efficiency is low.
SMM Advisory Services – Overseas Investment Sector
