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On January 12, the London Metal Exchange (LME) copper future prices fell to below $6,000 per ton, a critical point, which was firstly seen since October 2009. Since then, the copper price dropped sharply. On January 14, intraday LME copper future price in the Asian market fell dramatically by more than 8%, setting a record large since September 2011, hitting $5,353.25/ton and refreshing the lowest since July 2009.
Such a plummet in the copper future price caused a widespread fear of the market, with no exception for the domestic one. On January 14, the main contract of Shanghai copper (41290, -50.00, -0.12%) 1503 opened at a lower price and then fell, touching the limit down after opening soon. It closed at RMB 41,190/ton, down RMB 2,170/ton. On January 16, the main contract of Shanghai copper 1503 dropped sharply again, with the intraday price once falling to below RMB 40,000/ton, a critical level.
Many market participants are pessimistic about the future trend in the copper prices. Some analysts believe that the market is fear about the fall in copper prices, and will continue to spread the sentiment. The domestic copper prices are expected to fall to about RMB 38,000/ton.
According to the estimate from British Commodity Research Unit (CRU), the copper prices over the next 18 to 24 months are likely continuing to fall. China's refined copper imports will reach 2.35 million tons in 2015, the lowest level since 2008. In addition, the latest Bloomberg strategist Tanvir Sandhu said in the publishing that, based on the oil price level, the price of copper, which is looking for a new equilibrium, may plunge 40%. He also said the soft demand, especially the poor one from China, will result in drops in both oil price and RMB, but the US dollar will perform strong. All of the factors would push the copper price downwards.
The copper price falling exerts positive effects on the downstream cable industry
Some people are worrying, while some others feeling happy. The sharp decline of the copper price will bring really good influence to the downstream copper-users, such as household appliances, building materials, and cable industry. For example, a number of cable listed companies with copper as the main raw material are possible to perform outstanding in the round of raw material price falling.
Some industry experts have pointed out that copper accounts for more than 70% of the cable raw material cost. The cable orders are basically dominated by close-end contracts (that is, the contractual price does not vary with the raw material price fluctuations) with the implementation period for most of the orders ranging between 3 and 6 months. The unfinished contracts that have not yet been implemented in 2014 will greatly benefit from the decline in copper price. It is expected that, the copper price falling by 10-15% will bring at least 5 percentage points of net profit to the unfinished orders of cable industry. We hereby sort out a few stocks related to the wires and cables that will gain the most obvious benefits.
As a leader in China's cable industry, Smarter Energy (600869) provides the products and services to smart grid cables, intelligent buildings and factories cables, smart wind power cables, intelligent transportation cables, smart oil and gas cables, smart nuclear-grade cables, smart PV cables and general engineering contracting, planning and designing, and energy efficiency management. The products are widely used in electric power, transportation, new energy, petroleum and petrochemical, urban construction and other areas. Through acquiring Intelligence Power and SEMEUREKA, Smart Energy has been promoting cooperation with Tesla [microblog] in the field such as charging stations for new energy electric vehicles, to accelerate an external development and actively layout the "electricity system reform".
Given its large output value scale and zero inventory management model, the company is expected to be the most favorable beneficiary from the next round of copper price falling.
Baosheng Group (600973) is China’s leading wire and cable manufacturer, at present mainly producing various series of wires and cables, including bare copper wires, electrical equipment-used cables, power cables, and network cables. Since it was included into Aviation Industry Corporation of China, the company has been implemented the strategies based on both endogenous growth and extensive expansions such as M&A.
Star Cable (603333) is one of the national hi-tech enterprises focusing on R&D, production, sales and services, with the products widely used in many nuclear and wind power, petroleum and petrochemical, and other new energy fields, as well as a lot of areas and major projects such as military and aerospace. The products are sold across 34 provinces, municipalities and autonomous regions in the country, and exported to over 20 countries and regions including India, Libya, and Kazakhstan.
