Large Chinese copper processors are focusing on higher value-added products and investing in R&D to enhance their technical know-how to maintain margin resilience amid a prolonged industry downturn, says Fitch Ratings.Fitch expects Chinese copper processors to continue to record thin margins due to overcapacity and the sustained weakness in copper prices. Copper product prices may continue to fall more rapidly than the prices of copper cathode and copper scrap – two major raw materials for copper processors – due to slowing demand. At the same time, increasingly stringent labour and environmental protection requirements will raise costs, which will further squeeze processors’ profitability. More than 20% of copper processors in China have been posting net losses for the past three years.However, Fitch expects large companies with R&D capability, technical know-how and economies of scale to record resilient margins. For example, leading players such as Jiangxi Copper Co., Ltd and Tongling Jingda Special Magnet Wire Co., Ltd maintained stable copper processing gross profits of over CNY3,300 per tonne on average in 2014 and 1H15, while many of their smaller peers had gross profit of under CNY1,000 per tonne or posted losses.We expect large, leading Chinese copper processors to continue to actively invest in R&D of high value-added copper products, diversify their product offerings, and pursue vertical integration. For example, Tongling Nonferrous Metals Group Co., Ltd is developing precision copper foil for use in lithium batteries and other high value-added copper products.
The material has been provided by InstaForex Company – www.instaforex.com