Is a new wave of price increases coming?

Wu Xiaobo Channel

2024-05-11 10:00Posted on the official account of Zhejiang Hangzhou Bajiuling Cultural and Creative Co., Ltd

"The main copper contract of the Shanghai Futures Exchange exceeded 81,000 yuan/ton, reaching the highest since 2006; The main copper futures contract on the London Metal Exchange exceeded $10,000/ton, reaching the highest since 2022. ”

Text / Ba Jiuling 

Is the price rise of home appliances and automobiles coming?

The price of a 4,000-yuan color TV has increased by nearly 1,000 yuan?

Such a crazy price increase happened three years ago, and there was a wave of price increases in the home appliance industry.

At that time, the price of Midea refrigerators was raised by 10% to 15%; Gree air conditioning, Dong Mingzhu insisted that the price would not increase, but he also relaxed his tone during the price increase, saying that the price increase "depends on the situation".

Just as this year's peak season for home appliances is coming, this price rise cycle may reappear, and may affect people's livelihood industries such as electronic products and new energy vehicles.

The main reason is that "copper", which is an industrial raw material, has risen too much recently.

Some time ago, not only the main copper contract of the Shanghai Futures Exchange exceeded 81,000 yuan/ton, reaching the highest since 2006; The main copper futures contract on the London Metal Exchange also once exceeded $10,000/ton, reaching the highest since 2022.

This chart shows how high the "water level" of copper prices is

The price of copper futures often reflects the future spot price.

In order to alleviate cost pressures, some companies are ready to "exchange aluminum for copper".

Some time ago, Xiaomi cars caused controversy because of the use of aluminum wiring harnesses instead of copper wiring harnesses in the charging wiring harness. Later, Xiaomi Auto said in a question and answer to netizens' questions released on April 5 that at present, the charging wiring harness of most OEMs uses aluminum conductor solutions.

It can be seen that nowadays, in the new energy vehicle industry that is fighting a price war, the cost reduction plan of "copper to aluminum" has become the mainstream development trend.

There are also some more cost-sensitive companies that can only rely on price increases to reduce cost pressures.

For example, in the chip packaging process of the semiconductor industry, copper pillar bump technology and copper foil substrate are required as raw materials.

In the context of the sharp rise in copper prices, Shenzhen Chuangxin Micro, Zhejiang Yaxin Micro, Wuxi Huazhongxin Micro, Nanjing Zhilingxin, as well as Shandong Taijixing, Shenzhen Sanliansheng, Ningbo Kangqiang and many other semiconductor companies in the semiconductor industry have to adjust prices, with a maximum range of 20%.

In the home appliance industry, there are more components that use copper, so the situation is even more awkward.

According to media reports, some small and medium-sized manufacturers of household appliances are under huge pressure. For example, a second-tier air conditioning brand is facing the pressure of soaring copper prices on the one hand, and full inventory and sluggish sales on the other hand.

Looking back at the price increase tide in the home appliance industry three years ago, it was caused by the sharp rise in copper prices. At that time, the price of spot copper soared from a low of $4,371/ton in March 2020 to a high of $9,617/ton in February 2021, an increase of more than 100%.

So this rise in copper prices, will it make the wave of home appliance price increases three years ago reappear this year?

Do you plan to buy electrical appliances, electronic products, and new energy vehicles next? Multiple choices

"The King of Macroscopia" - Copper

Before answering this question, we need to understand what exactly copper does.

Copper is known as the "king of macroscopics" because it is the "industrial backbone" of major industrial industries.

According to SMM data, China's refined copper consumption last year was 15.22 million tons, of which the power sector accounted for 46.7%, nearly half, followed by home appliances 13.8%, transportation 12.6%, machinery and electronics 8.3% and construction 8.0%.

What's more, China's economic pillars – real estate and automobiles – are also in dire need of copper.

Let's start with real estate. In the construction of the house, it is necessary to lay wires, cables, transformers, copper water pipes, radiators, and gas pipes in the building, and the decoration after the completion of the house also needs to lay wires, and copper is used in each link.

Let's look at the car. According to ICSG data, a traditional car needs about 23kg of copper, and now the amount of copper used in new energy vehicles is 3-4 times that of traditional cars, about 60kg of copper for a pure electric vehicle, and about 83kg for a plug-in hybrid vehicle.

According to the production of 9.587 million new energy vehicles in the country last year, it is equivalent to 641,000 tons of copper used in the production of new energy vehicles last year.

This demand can directly eat up the copper output of a world-class copper mine in a year. For example, the mining giant China Molybdenum, which owns a world-class copper and cobalt mine TFM, can only produce 450,000 tons of copper a year.

Therefore, the rise in copper prices is likely to greatly increase the production costs of all walks of life, set off a wave of price increases, and finally affect the overall economic situation.

In this sense, the rise and fall of copper prices can be used as a leading indicator to observe the macroeconomy, and the title of "macro king" is worthy of the name.

What are the reasons for the rise in copper prices?

So what is the reason for the sharp rise in copper prices this year?

On the one hand, there are financial reasons.

The rally in copper prices began in October last year, when market expectations for a Fed rate cut gradually increased. Low interest rates stimulate economic activity, which in turn affects copper consumption.

Secondly, the global manufacturing PMI is steadily rebounding. When the PMI of the manufacturing industry is high, it means that the demand for copper in the manufacturing industry will be relatively strong, which will stimulate the rise of copper prices.

In addition, because copper prices have a negative correlation with the U.S. dollar index (an indicator of the overall strength of the U.S. dollar in the foreign exchange market), when the U.S. dollar index falls, it will also be conducive to copper prices.

On the other hand, geopolitical and other factors, overseas copper mines are facing a tight supply situation, resulting in short-term changes in the supply and demand relationship of copper.

For example, in late October 2023, truckers in the DRC, the world's second-largest copper producer, went on a large-scale strike, among which Kamoa-Kakula, the world's second-largest copper mine, saw its output fall by 7.9% in the first quarter; In early November, a nationwide protest broke out in Panama, and the Cobre copper mine, one of the world's largest copper mines and an annual production of 1.5% of global copper production, was locked down, affecting production operations.

In the long run, copper prices will have long-term upward pressure from 2027 to 2032.

First of all, the production capacity of global copper mines has long been at its peak. Global copper mining peaks since 2013 and has remained at a low level since 2015.

Second, capacity utilization at copper mines is also decreasing.

The global copper ore grade continues to decline (grade refers to the proportion of copper in copper ore), and the cost of copper mining is getting higher and higher, resulting in a gradual decline in the capacity utilization rate of copper mines. From 2018 to 2022, the global copper mining capacity utilization rate decreased from 85.2% to 79.8%.

With limited capacity and low capacity utilization, global copper inventories are currently quite tight. As of May 7, 2024, copper stocks on the London Metal Exchange (LME) stood at 107,300 tonnes.

There will always be a gap between supply and demand for copper in the coming years.

Some experts mentioned that from 2027 to 2032, the domestic copper gap will remain at about 8 million to 10 million tons. Globally, the gap between supply and demand is also gradually widening. Huibo Information predicts that the supply and demand gap of global refined copper from 2024 to 2026 will be 7,000 tons, 103,000 tons, and 196,000 tons, respectively.

Citibank believes that spot copper prices will continue to rise in the coming months, reaching $10,000 per tonne by the end of the year and climbing to $12,000 in 2026.

Shocks to China

China is a big manufacturing country, and it is also a big copper user.

The world's major consumers of copper are China, the United States, Germany, Japan and South Korea. Last year, China's refined copper consumption reached 15.22 million tonnes, accounting for 56.2% of global copper consumption.

However, China's current copper production capacity is not high, and in 2023, China's copper production will only account for 8% of the world's copper production.

This means that China's copper resources are highly dependent on imports. Last year, the mainland imported 3.511 million tons of refined copper and 27.54 million tons of copper concentrate, and its dependence on foreign copper resources exceeded 70%.

Under the condition of low production capacity and great demand, and the situation of high copper prices, China's home appliances, new energy vehicles, electronic products and other industries are bound to encounter impacts.

For example, the air conditioning industry in the home appliance industry.

In the material cost of air conditioning products, copper accounts for about 23% of the total cost of air conditioning. The amount of copper used in each air conditioner is 5-8 kg, and the copper price is more than 60,000 yuan/ton, and the copper cost of a single air conditioner is 300-500 yuan.

The price of copper has risen from more than 60,000 yuan/ton to more than 70,000 yuan/ton, and the cost of copper for a single air conditioner will rise by 50-100 yuan, and the cost of materials such as aluminum and refrigerant will increase, and the direct cost of a single air conditioner product may increase by more than 100 yuan.

From the perspective of the industry, with the downgrading of public consumption and rationalization of consumption, household appliances such as air conditioners have encountered pressure on the demand side, and now they are under pressure from the rising price of raw materials on the cost side, and will face greater challenges next.

Although the wave of price increases is one of the solutions, which can temporarily absorb the pressure of rising costs through prices, in the long run, it is likely to make the consumer side more sluggish.

Next, major companies may have to be prepared to grit their teeth and fight a tough battle.

How to properly stock up and not blindly increase inventory, how to strike a balance between price fluctuations, and how to find good opportunities in more fierce market competition are all processes that need time to answer.

The author of this article | Mei Haoyu | Editor-in-Charge | Xu Tao

Editor-in-Chief | He Mengfei | Image source | VCG

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