Supply-side reform accelerates the transformation of non-ferrous companies

In recent years, supply-side reform has become one of the most fashionable hot words in the commodity sector. On the 26th, Wu Yuneng, deputy general manager of Jiangxi Copper Group, stated at the non-ferrous metal forum “Jiang Copper Special” seminar that, despite the challenges faced by supply-side reform, non-ferrous enterprises face many challenges, but at the same time there are also many opportunities. “On the one hand, they can accelerate Strip excess production capacity to ensure the safety of strategic resources; on the other hand, it can also promote energy conservation and efficiency enhancement of enterprises, which will lead to a reduction in the cost of enterprises and an increase in profitability."

Taking copper as an example, the structural contradictions in the domestic copper industry are still prominent. It is understood that in 2015, China's copper smelting investment in fixed assets was 10 times that in 2003, copper smelting capacity was 5 times that in 2003, and consumption growth was only 3 times that in 2003, and smelting growth was faster than consumption growth. Speed, refined copper production capacity is in surplus.

In view of this, Wu Yu-neng believes that some domestic regions and enterprises still have the desire to continue new or expansion, copper smelting production capacity may continue to expand, and the downstream processing industry due to overcapacity reshuffle is ongoing, affected by the market weakness Currently, the operating rate of small and medium-sized copper processing companies is obviously insufficient. In this context, supply-side reforms will force the accelerated stripping of excess capacity.

Wu Yuneng further explained that China’s long-term lack of copper and nickel and its heavy dependence on foreign resources require the consolidation of investment and development of scarce resources at home and abroad to ensure the security of strategic resources.

It is understood that the aluminum smelting industry is one of the areas directly benefiting from supply-side reforms. According to Wu Yu-neng, domestic direct electricity supply ton aluminum consumes less than 0.25 yuan per kWh of electricity, tons of aluminum cash costs about 8,600 yuan per ton, while the net electricity consumption of tons of aluminum consumes more than 0.35 yuan per kWh, and tons of aluminum costs about 11,500 yuan. Tons, therefore, the marginal improvement in profitability is most noticeable for the self-provided power transformation and industry integration of advantageous companies.

In addition, according to Wu Yuen-Neng, in the context of supply-side reforms, non-ferrous companies are also expected to accelerate mergers and acquisitions and increase their pricing power.

Some market participants expect that the surplus of non-ferrous metals will be greatly eased in 2016. If the supply-side reform accelerates the overcapacity, the withdrawal of production capacity is expected to become a long-term clearing, and the industry will accelerate the “rebalancing” of supply and demand.

In fact, the copper smelting and refining costs in 2016 both fell for the first time in five years, indicating that the upstream mine supply contraction accelerated. In this regard, Wu Yu Neng said that with the withdrawal of small and medium-sized non-ferrous metal mining and smelting companies, large companies are expected to integrate mine resources, increase the self-sufficiency rate of ore, and at the same time through the integration of smelting capacity, enhance concentration, regain strong upstream and downstream Bargaining power.

In addition, Wu Yu-neng believes that with the recent efforts of central and local governments, special support policies have been introduced in terms of financial subsidies, reducing tax costs, reducing institutional transaction costs, promoting **, expanding markets, increasing supply, and optimizing the environment. By governing supply-side reforms, relevant companies will be able to make full use of preferential policies to achieve transformation.