SHANGHAI, Jan 4 (SMM) - 2022 is an extraordinary year for China that started with another wave of Covid-19 across the country, and ended with a surge of Covid infections after the stringent pandemic control policy was lifted. In retrospect, the global economy was haunted by the Fed's interest rates in 2022. During the year, the Fed raised the interest rates by 350 basis points in total, and the U.S. dollar index hit a 20-year high. High inflation pushed up the overseas interest rates, which resulted in an economic downturn overseas. Therefore, domestic exports faced greater pressure in 2022 than in previous years. In this context, the development of the copper pipe industry in China was also suppressed by the sluggish global economy.
In 2022, the operating rates of copper pipe industry hit fresh lows. In fact, the operating rates of copper pipe makers in 2022 as a whole stayed at relatively low levels in the past five year except for the early 2020, when operating rates were below 60% due to the initial breakout of covid-19 pandemic. The analysis shows that the operating rates of the domestic copper pipe industry declined due to the following factors.
First, the sluggish real estate market in 2022 dragged down the overall demand.
2022 is a difficult year for China's real estate market. The impact of the pandemic on the delivery of pre-sale houses, combined with the weaker motivation for the medium- and long-term house purchasing demand, resulted sluggish data for real estate companies from the operating rates to sales. At the beginning of the year, a number of real estate-related stimulus polices were introduced but yielded little effect, for which the poor market confidence was to blame. Although more favourable real estate policies were rolled out in the fourth quarter and more financing support were provided, the stability of real estate sector is still the primary goal at the end of 2022 and the beginning of 2023.
It is learned that 90% of copper pipes in China are used in the production of air conditioners. Therefore, when the delayed delivery of pre-sale houses has stifled the purchase of new air conditioners, it constituted the major reason for the low operating rates of copper pipe industry during the year.
Second, high inflation put pressure on overseas economies and thus the proportion of exports declined.
In 2022, the global economy was rattled by the Fed’s torrid interest rate hikes amid high inflation overseas. Overseas economies were under pressure and there were even signs of a recession. As the demand for durable goods overseas dropped significantly, several large domestic companies that focused on air conditioner export saw an obvious decrease in the market trades. The reduction in export orders for air conditioners hurt the production enthusiasm of copper pipe enterprises, hence their operating rates slipped.
Third, the copper pipe industry was reaping smaller profits but the competition was intensified.
According to SMM research, new copper pipe capacity was 200,000 mt in 2022, which all came from a newly established copper pipe company. However, as of December, less than 120,000 mt of the capacity was put into production, while other companies had no plans to expand production. In general, the copper pipe industry is beset with vicious competition. Some terminal enterprises and car makers lowered the processing fees, making the profits for copper pipe producers even smaller. Most producers said that the current processing fees were not enough to cover their financial costs and they were faced with meagre profits or even losses. At the same time, the efficiency of finished product delivery to car makers also decreased, which caused gripe among them.
The year-by-year decline in processing fees has made it difficult for copper pipe producers to survive, and the start-ups with strong strength were able to snatch orders from the others. Some enterprises were intimidated, and their operating rates slid sharply thus with fewer market share.
Fourth, the operate rates were restricted as unexpected incidents weighed on the operation of companies.
The production throughout the whole year of 2022 was under the shadow of unpredictable pandemic outbreak. In particular, the spike in infected workers in March-May and October-December caused the operating rates to fell shy of expectations. Moreover, the unexpected power rationing policy brought about by the extreme high temperature in August dealt a huge blow to some copper pipe enterprises in Jiangsu, Zhejiang and Chongqing. The average operating rate of copper pipe makers in August was only 66.51%, tied for the lowest level in the same period in the past five years. .
Copper pipe companies have gone through an eventful 2022, and most of them were battered by vicious competition in the industry and multiple emergencies. In November, the favourable policies were introduced to boost the real estate industry and the domestic strict Covid-19 control measures were scrapped in December. The expectation for an economic recovery in the coming year will greatly boost market confidence. It is anticipated that the development of domestic copper pipe industry will improve in 2023. Nevertheless, most companies still express concerns about orders in the coming year and claim that they will give priority to securing stability while adhering to national policies.
