Electrical Equipment / Components & Telecoms

Since the beginning of this year, the global copper price has risen wildly. At the end of April, the price of copper in London futures exceeded US$10,000/ton, a record high in 10 years. The Bank of America even shouted that if the expected increase in the supply of secondary materials (non-transparent markets) is not realized, copper may be exhausted within three years, and the copper price is expected to reach US$20,000/ton by 2025.

The market's view of the skyrocketing copper price is polarized. The industry and traders are not optimistic, but investment banks are more active. Since my country is a copper-poor country, domestic enterprises mainly profit from processing fees, and they rarely enjoy the dividends brought about by the rise in copper prices. Since the beginning of this year, copper prices have continued to hit new highs, causing many physical industries to have to shift costs, especially in the semiconductor industry. This year, the semiconductor market is out of stock and rising prices, and the rise in copper prices is one of the important factors.

The recent price trend of London copper futures |

Why did copper prices soar this year?

Regarding the copper price, according to the latest report released by Goldman Sachs, the low copper price will lead to the risk that the inventory will be exhausted in the short term. To avoid this risk, Goldman Sachs predicts that the average price from 2022 to 2025 will reach US$11,875/ton, US$12,000/ton, US$14,000/ton, and US$15,000/ton. Not only Goldman Sachs, Citibank also stated that copper prices are optimistically expected to reach US$12,000/ton from 2021 to 2022. For the first time, Goldman Sachs has turned copper into the new "crude oil."

There are several reasons for the increase in copper prices. One is the decrease in supply. In 2021, the global refined copper production capacity is expected to increase by about 3.9%, but in 2022, the growth of refined copper production is significantly lower than expected, only about 1%.

From the perspective of global copper stocks, LME copper stocks on April 30 decreased by 16% compared to the past few weeks. Compared with the rapidly consumed stocks, the supply was completely unable to keep up. The global copper demand growth was only 6.5%. There has been a supply gap of 521,000 tons. Although the copper stocks held by major manufacturers and suppliers are considerable, it is difficult to monitor, and as demand increases, prices will continue to rise.

Some people think that relevant departments can regulate market prices by means, but it is difficult to regulate global commodities. Many commodities are basically priced internationally. If domestic prices are not raised, taking copper as an example, many people will buy copper in the country and sell it abroad for arbitrage. This behavior will quickly fill the price gap between domestic and foreign.

At the same time, the World Health Organization has previously revealed that high-income countries have been vaccinated, while poor countries do not have vaccines. This has led to the first recovery in developed countries, but poor countries are still suffering from the epidemic. Developed countries are the consumer side, and consumer demand is rising, while poor countries are the raw material suppliers, and the epidemic has led to a decrease in supply. As demand increases and supply decreases, prices will naturally rise.

Copper prices have repeatedly hit record highs. Another reason is that my country has set the overall goal of achieving “carbon peaks” by 2030. In the past ten years, clean energy will gradually replace traditional fossil energy, which also brings new energy such as wind power and photovoltaics into a period of intensive construction. Some organizations predict that by 2025, the average annual copper demand driven by domestic clean energy will be around 550,000-650,000 tons.

At the same time, copper plays an important role in many fast-growing industrial fields such as electric vehicles and semiconductor wiring. As the overall global economy recovers, these industries have also boosted the demand for copper.

Goldman Sachs also pointed out that copper is the most cost-effective conductive material. If there is no significant increase in the use of key metals such as copper, there will be no renewable energy to replace petroleum. Under the global melody of zero emissions, copper plays a particularly important role in green energy.

Copper drives the semiconductor market crazy

The rise in copper prices has actually affected our lives. Since the beginning of this year, the semiconductor industry as a whole has shown a trend of stock-out and price increases. The rise in copper prices is one of the important reasons for the price increase of many semiconductor devices. This has been reflected in the terminal products. The prices of many consumer electronics and home appliances have seen significant increases, such as mobile phones, earphones, washing machines, televisions, etc. The price of some products has increased by 10%, and the increase of individual products has reached 20%, which means that the cost of upstream raw materials price increase is finally transferred to consumers.

For the semiconductor industry, bad devices have also been affected by rising copper prices. Taking relays as an example, most of the conductive materials in the relays use brass or industrial pure copper, and brass is mostly used as the conductive material where flexibility is not required. Therefore, the rise in copper prices has a great impact on the relay industry.

Sanyou Lianzhong responded to the rise in copper prices in response to relevant stockists saying that the company has already made corresponding adjustment measures, such as futures hedging. According to industry insiders, the price of relays has risen, and the profit margin in 2021 has risen by 30%.

In the market segment, according to Hongfa's latest financial report, Hongfa has reached the world's largest relay scale. Q1 HVDC relay shipments doubled, with cumulative shipments reaching 205 million yuan, a year-on-year increase of 105%. This was mainly due to the global sales of new energy vehicles rising by 139% year-on-year. Combined with the recent price increase of Tesla and other new energy vehicles, we can explore the impact of the rise in copper prices.

The power and automotive businesses continued to grow at a high rate. Q1 shipments of power relays amounted to 892 million yuan, a year-on-year increase of 49%. Power relays mainly come from the fields of large and small home appliances, smart home products, new energy, household photovoltaic inverters and so on. The total shipment of automotive relays in Q1 was 390 million yuan, a year-on-year increase of 59%. Among other categories, power, industrial, signal relays and low-voltage electrical appliances increased by 19%, 41%, 30% and 48% year-on-year respectively in Q1. From the perspective of the relay market, it can be seen that the current market is recovering rapidly, but the continuous increase in the price of relays is also affecting the recovery process of the entire industry.

In addition to relays, electronic factories that use copper as their main raw materials, such as semiconductor packaging and copper foil substrates, are also facing the pressure of increasing costs. As early as the beginning of this year, the global semiconductor packaging and testing leader ASE Holdings and copper foil substrate manufacturers such as Lianmao, Tenghui, and Taiyao have all started to increase prices in response. If copper prices continue to rise this year, the price of copper foil substrates may rise further.

In addition, markets such as cables are also deeply affected. Some cable practitioners said that more than 3 million cables were quoted at a price of 65,000 yuan/ton in March, and the price had risen to 72,000 yuan/ton at the end of April. Proposing an invalid bid directly to the owner, obviously the cost of the bid bond is far less than the price increase.

And now the cable factory’s confidence in rejecting bids lies in the fact that the market has now turned into a seller’s market, and many projects are ready for advanced acquisition of cables. Today’s cables are not worried about selling.

However, for many small and medium-sized electronics factories, the rise in copper prices has become a disaster. Many companies are forced to suspend production due to the cost, and the terminals of marine products do not accept price increases. As a result, companies cannot transfer costs, so they dare not accept new ones. Order. Rising costs have also kept the profit margins of these companies being compressed.

summary

The subject matter of this round of copper price rise speculation is new energy vehicles and major infrastructure in the United States, but in fact, copper prices have risen all the way since March last year. Perhaps the only people who benefit here are the speculative capitalists. Compared with those who sell pork and masks, the capital who sells copper mines and copper scrap are the real big winners. But this madness will not last forever. As copper mining resumes and demand returns to rationality, the impact on semiconductors will eventually return to a controllable state, but this process may continue for several years.