Analysis and solution of risk sources of copper industry in China

China is the world's largest consumer of copper . In 2009, apparent consumption of copper reached 7.14 million tons, accounting for 39% of global demand. To reduce the market risk of China's copper industry as a whole, it is necessary to improve the internationalization level of China's futures market, including the internationalization of the main body of the futures market and the internationalization of the object of the futures market.

Under the strong demand, China's copper smelting capacity has expanded madly. In the past five years, the domestic new capacity for copper smelting has averaged about 1 million tons per year. As of the end of 2009, China's copper smelting capacity reached 5.16 million tons.

Compared with the smelting capacity of crazy expansion, China's copper concentrate resources are seriously scarce. From 2002 to 2009, China's refined copper production expanded from 1.5 million tons to more than 4 million tons, and the copper concentrate production gap increased by 3 million tons, making the external dependence of copper concentrates in China greatly improved. At present, China's copper concentrate self-sufficiency rate is about 23%.

As China is in the middle and downstream of the global copper industry chain, China's copper industry is facing great risks in the context of large fluctuations in international copper prices, and is highly susceptible to various factors outside production and management. Therefore, it is necessary to analyze the risk sources of the domestic copper industry and the various risks caused by it in many aspects, so that the industrial enterprises can “make the right medicine” and change the copper industry in China from passive to active.

I. Risk sources facing China's copper industry

(1) Disorderly expansion of domestic copper smelting capacity

Since 2003, the domestic copper smelting industry has expanded madly under the spur of rising copper prices and strong domestic demand. However, the expansion of China's copper smelting capacity is mainly caused by the large-scale construction of small smelters, rather than the expansion of large-scale copper enterprises.

The disorderly expansion of smelting capacity not only intensified competition for copper smelters in China to compete for copper concentrates, but also led miners to compete to lower smelting costs, and some of the backward smelting capacity that was small in investment, short in cycle, and eliminated by policies made environmental protection The pressure is huge, bringing other social costs.

(2) Processing fees continue to decline, and smelters survive

Due to the disorderly expansion of smelting capacity, the shortage of copper concentrate in China is more obvious. At present, China's annual refined copper production has exceeded 4 million tons, but the annual output of copper concentrate is only 1 million tons, and there is little room for further growth. Most domestic copper smelting enterprises can only import copper concentrate, making China's current Copper concentrate has an external dependence of more than 75%.

In view of the tight supply situation of global copper mines, international miners canceled the price sharing clause in 2006-2007, so that smelters could not obtain corresponding benefits through the rise of copper prices, and they could only rely on processing fees to obtain profits. Due to the strong position of miners, copper smelting and processing fees have continued to decrease in recent years. Copper concentrate processing fees fell to a low of US$46.5/4.65 cents in the first half of this year. Copper concentrate processing fees are expected to further decrease to US$39 in the second half of the year. /3.9 cents historical low. Before the contradiction of copper concentrate supply and smelting capacity continues to expand, copper concentrate processing fees will remain low in the next few years. China's copper smelters have to endure the dilemma of “marriage” for miners. The situation is worrying.

(3) Copper prices fluctuate frequently and the price transmission period is long

Normal business operations require raw material prices relatively stable, but the current copper is not only a simple commodity, has become a strong financial attributes of investment goods, any sign of trouble in the global economy will lead to fluctuations in copper prices. After experiencing the plunge in 2008, the international copper price ushered in the surge in 2009, making China's copper industry-related enterprises at a loss.

The copper industry chain is relatively long. From the production of copper concentrates in the upstream to the copper smelting in the middle reaches, copper processing to downstream wire and cable, air-conditioning production, etc., the copper price has a long transmission cycle. However, many domestic enterprises use order production. It is difficult to pass the cost out in a timely and effective manner. In the period of falling copper prices, there are often cases where raw materials are more expensive than finished products. After the outbreak of the international financial crisis in 2008, China's copper smelting industry suffered losses, and a large number of copper processing enterprises closed down, giving China's copper industry a very "lively" risk education course.

(4) The persistent high copper price constitutes a threat

At present, the imbalance of global copper supply and demand makes copper prices continue to operate at high levels, posing a huge threat to the ecological environment of China's copper industry chain.

From a global perspective, the supply of copper mines is still very tight in the coming years. On the one hand, the grade of copper ore is declining, and on the other hand, there are fewer large copper mines newly discovered. In the past 10 years, the average grade of world copper mines has dropped from 0.9% to 1% to less than 0.8% today; the newly discovered copper reserves have been reduced by about half each year, from 15 million to 20 million tons to the current 10 million tons. . Moreover, several newly discovered large copper mines take 4 to 10 years before they can be put into production.

Corresponding to the tight supply of copper, China's copper demand has expanded dramatically. According to the World Bureau of Metal Statistics (WBMS), China's copper demand in 2000 was less than 2 million tons, and in 2009 it has reached 7 million tons, with an average annual growth rate of 15%. As China is still in the process of industrialization, the demand for copper in the power industry continues to be strong, and the high copper price caused by the imbalance of global copper supply and demand will continue to threaten China's copper industry.

(5) Facing the international copper resources competition in the future

The demand for copper is closely related to the industrialization process. From the historical experience, developed countries have had huge copper demand during the industrialization process. From a global perspective, emerging market countries represented by the BRIC countries will continue to be the driving force for global economic growth. In addition to China's demand, India's copper consumption and output in recent years have been growing at a rate of 10%. Copper demand in the future has huge growth potential and may become a rush to copper resources with China. Competitor.

China and India belong to the same emerging countries, but at present India's infrastructure is far less than China's, especially the power facilities are not perfect, and more than 100 million people in rural areas have not yet used electricity. With the development of the economy, the large-scale improvement of Indian power facilities in the future will increase the demand for copper. At present, the per capita copper consumption in India is only about 0.5 kg, which is about 5 kg in China and 12 kg in developed countries. In 2009, India's copper consumption was 550,000 tons. According to the growth rate of 10%, India's copper consumption will reach 4 million tons in 20 years. Since India's copper resource endowment is weaker than that of China, most of the copper mines needed to be purchased from the international market. Therefore, in the future, India will replace Japan, Europe and the United States and other developed countries, and become the main force for competing for copper resources with our country. The thorny issue facing the future of China's copper industry.

Second, the path to solve the risk of China's copper industry

(1) Deeply tapping the potential of domestic copper resources

At present, although China's copper resources are relatively scarce, it has not reached the point where “the mountains are running out of water”. After the surge in copper prices, the poor mines that have not been developed in the past and some copper mines with backward transportation facilities and large initial investment have potential for exploitation. Therefore, it is necessary for us to continue to strengthen the reassessment of domestic copper resources and further search for new copper resources. China's largest copper mine, Tibet Yulong Copper Mine, has been discovered since 1966, but the harsh natural environment and backward traffic conditions have restricted the development of the mine. With the continuous increase of international copper prices and the depletion of existing copper resources in China, Yulong Copper Mine finally entered the substantive development stage in 2005 and was completed and put into production in 2008.

In recent decades, China has mainly developed copper mines in the eastern region. With the gradual depletion of resources in these regions, the northern region and the central and western regions will become key areas for development. From a geological point of view, the western part of China's western Territory-Himalayan metallogenic belt has good metallogenic conditions, but due to poor local economic conditions, some areas have poor ecological environment and development has been restricted. However, with the implementation of the strategy of developing the western region, the large-scale development of copper resources in the central and western China will become possible. The Yulong copper mine in Tibet has provided us with a model.

(2) Full and effective use of recycled copper resources

Copper is a renewable resource. While vigorously developing new mineral resources in China, we should also make full use of recycled copper. From a global perspective, with the rise in copper prices, the use of recycled copper has increased year by year. According to the International Copper Research Organization (ICSG), the global production of reclaimed copper in 2009 was 2.91 million tons, accounting for 15.8% of the total refined copper. In major developed countries, the proportion of recycled copper production is very high, with the United States accounting for about 60%, Japan accounting for about 45%, and Germany accounting for about 80%.

In recent years, China's recycled copper industry has achieved great development, and currently about 700,000 tons of scrap copper is recycled annually. However, due to the relatively short period of large-scale use of copper in China, the insufficient social reserves of domestic copper have limited the development of China's recycled copper industry. Since the founding of New China, the cumulative consumption of copper in China has been around 55 million tons, while the cumulative consumption of copper in Japan and the United States has been 80 million tons and 100 million tons respectively. Moreover, the large-scale centralized use of copper in China began in the late 1990s. With the 30-year average service life of copper products, it is still a long time for copper products in the consumer sector to enter the end of life. Therefore, at this stage, domestic scrap copper can not meet the needs of China's copper industry. In addition to the 700,000 tons of scrap copper recovered annually in China, China needs to import more than 1.3 million tons of scrap copper every year.

However, due to the continuous rise in copper prices, countries around the world have paid more and more attention to recycled copper resources, and the protection of scrap copper resources has been increasing. At the same time, the development of the recycled metal industry in other countries is also very rapid, and has formed competition with China, making China's scrap copper imports very unstable. Therefore, China should first guide from the policy side and appropriately relax in some aspects. Since 2007, China has cancelled the import tariff on scrap copper and played a positive role in promoting the import of scrap copper. Relevant departments should further take measures to improve the supervision mechanism for scrap copper import, improve customs clearance efficiency, simplify the examination and approval procedures, and encourage the import of scrap copper.

Another need for the use of scrap copper in China is to rectify the problem of too many small smelters. There are only a few to dozens of reclaimed copper enterprises in developed countries, but there are thousands in China, with annual output ranging from several thousand tons to tens of thousands of tons. There are very few large-scale scrap copper smelting enterprises with an annual output of over 200,000 tons. Too many small smelting enterprises not only generate social and economic problems such as repeated investment and pollution, but also easily form vicious competition in the import of scrap copper. Therefore, rectifying the scrap copper smelting industry is the focus of promoting the healthy development of China's recycled copper industry.

In the process of regulating and guiding the recycling copper industry, the government should also be ahead of the market. From the perspective of the service life of copper products, power equipment can generally be used for several years. Cables and copper water pipes can be used for 20 or 30 years, and copper products used as building materials have a service life of more than 100 years. From the situation in China, most of China's copper is used in power installations and cables. After 1998, China's annual copper use exceeded 1 million tons. In recent years, the amount of copper used was 5 million to 6 million tons, which means that China will enter the peak period of scrap copper recycling after 2020. Moreover, as time goes by, the amount of scrap copper recovered in China will increase every year. If we can effectively use domestic copper scrap resources, it will greatly improve the unfavorable situation of China's copper supply. Therefore, the relevant state departments should effectively protect domestic copper scrap resources from a strategic point of view, formulate relevant laws and regulations, regulate the recycling of scrap copper, and do not rule out the prohibition of scrap copper exports to a certain extent, to prevent China from paying expensive prices. The resources are used by him, so that the utilization of China's copper resources enters a virtuous cycle of development.

(3) Increase the pace of overseas prospecting

China's demand for copper resources is growing fast. If we only limit our eyes to the domestic market, we can't meet the demand. Therefore, we must make full use of the two markets and two kinds of resources. While digging deep into domestic resources, we must actively use foreign resources overseas. Establishing a stable and reliable supply of mineral resources does not rule out the establishment of China's copper resource reserve base overseas.

Since China began to implement the "going out" strategy, some domestic enterprises have accumulated a certain amount of overseas M&A experience, both successful and failed, but the difficulties encountered are almost identical. From the outside, the unfavorable environment is mainly reflected in: Chinese enterprises face pressure from all aspects of the government, enterprises, the public and public opinion; the scale of Chinese enterprises is generally small, and there is no advantage when competing with powerful international mining companies; Countries such as countries with traditional resource needs, emerging countries such as India have formed competition with China. From the inside, Chinese companies do not understand enough about international exploration and mergers and acquisitions practices, lack sufficient professional talents, and are often at a disadvantage in negotiations. These difficulties and problems are mainly caused by historical reasons.

Due to the scarcity of resources, developed countries such as the United States and Japan have already mastered a large amount of overseas mineral resources reserves, and the massive mergers and acquisitions in the global mining industry have concentrated global resources in the hands of a few mining giants. As a post-rising person in the 21st century, China is vulnerable to the strong run of mining giants on the one hand, and the low quality resources left to us after the integration of mining.

In order to gain benefits in the increasingly competitive resource war, we must take a different approach based on historical experience. Looking at the history of acquiring overseas mineral resources from developed countries, Japan’s experience is worth learning from. The globalization of mineral resources in Japan is mainly due to the strong support of the government and the joint interaction of enterprises. The Japanese government encourages domestic mining companies to operate internationally through various means such as finance and finance, and comprehensively supports the establishment of mineral resource supply bases overseas from different angles such as politics and diplomacy. The Japanese government has also set up a metal mining business group to support the multinational operations of Japanese mining companies. At the same time, Japanese companies have placed special emphasis on collaborative management, not only collaborating with Japanese domestic companies, but also with overseas mining companies. To date, Japanese companies have owned shares in a number of important mines around the world, thus ensuring the supply of Japanese copper raw materials.

Although China's copper resources are very scarce, it is not wise for domestic enterprises to “buy a bee” to compete for copper resources overseas. Instead, it will raise the asking price of mines and increase the difficulty of developing overseas copper resources in China. Therefore, on the one hand, we require domestic enterprises to take the initiative to unite, on the other hand, further strengthen the industry rectification and encourage domestic copper enterprises to become bigger and stronger. Only domestic companies can form a joint force to be competitive enough internationally. At the same time, due to the various international pressures, Chinese enterprises should also take the initiative to jointly develop copper resources with other mining companies in the world to avoid counterproductive effects. Under the background that global copper resources have been controlled by international mining giants and there is certain protectionism, China's development of overseas copper resources cannot be achieved in one step. Only by gathering more and more can we gradually realize the internationalization of China's mining enterprises. Long-term goal.

In addition to the traditional approach, China should also take a different approach, in which the financial support for domestic enterprises is very important. The scale of China's mining enterprises is relatively small compared to the international mining giants. The current mining rights to purchase copper mines or the implementation of international mergers and acquisitions are hundreds of millions or even billions of dollars. There are still few domestic enterprises with such strength. China has accumulated a large amount of foreign exchange reserves, and it is entirely possible to set up special funds through some foreign exchange reserves, and fully support domestic enterprises to go out with low-interest loans and preferential mortgage loans. The outbreak of the international financial crisis from 2008 to 2009 shows that although the international mining mergers and acquisitions environment is harsh, there is no shortage of opportunities. If it is fully prepared, it can be taken overseas at an appropriate opportunity.

From the perspective of the state, it is necessary to continue to vigorously implement "resource diplomacy" and put resources in a higher strategic position. The economic freedom of South American countries is relatively high, and Africa, the southwestern and northwestern neighboring countries are generally friendly with China, and these countries should become the focus of China's "resource diplomacy." These ideal regions are mainly Chile, Peru, Kazakhstan, Zambia, Congo, Myanmar, Laos, Mongolia and Russia. If we can cooperate with these countries, China is expected to break the gap in the development of overseas resources.

(4) Strengthening industry rectification and improving industrial concentration

Copper processing fees continue to decrease, and “China demand” frequently stimulates international copper prices. In addition to the tight supply of copper mines, another important factor stems from the disorderly expansion of domestic copper smelting and processing capacity. In order to control the blind expansion of the copper smelting industry, the State Council and various ministries and commissions have issued a number of documents to control, which shows the country's determination to control the excessive expansion of copper smelting capacity, but in practice, due to the interests of local governments The structural adjustment of the copper smelting industry has encountered great resistance. From a strategic point of view, the rectification of the domestic copper smelting and processing industry should be resolutely implemented to further improve the threshold for entry into the smelting industry. At the same time, by eliminating energy-saving emission reduction standards and other measures to eliminate backward production capacity, and thus improve the concentration of China's copper smelting industry, Make some large copper enterprises in China have international competitiveness. This is also the key to China's copper enterprises in the international copper processing fee negotiations to gain more voice, and to make breakthroughs in the development of overseas copper resources.

(5) Full use of multiple tools to transfer market risks

The shortage of global copper resources cannot be solved fundamentally in the short term. Relying on overseas development and domestic exploration is also “not far from being thirsty.” In the face of large fluctuations in copper prices, domestic copper companies can only strengthen their own risk management and make full use of them. A variety of tools to effectively transfer market risk. At the national level, relevant departments should further strengthen the development of copper-related derivatives, enabling enterprises to easily use diversified hedging instruments.

China's derivatives market is still in its infancy, and only the futures market has been established. There are not many tools that domestic enterprises can use. Even so, the participation of domestic enterprises in the futures market is not enough, both the reasons for the enterprises themselves and the maturity of the domestic futures market. Nowadays, there are still a large number of enterprises in China who talk about the "color change" of futures, which is considered to be a high-risk tool, which is related to the bad social influence caused by the lack of understanding of enterprises and the use of futures as speculative tools by some enterprises. In addition, the distortion of the futures understanding is also reflected in our banking system. Due to several risk events involving misuse of derivatives in China in the past few years, some banks in China even issued a document prohibiting enterprises from participating in hedging. If they do not do so, they will reduce or stop the credit line. From this point of view, it is urgent to further popularize the future hedging function and standardize the hedging behavior of enterprises, and it is necessary for banks to establish a special hedging management team to supervise the hedging behavior of enterprises.

To reduce the market risk of China's copper industry as a whole, it is necessary to improve the internationalization level of China's futures market, including the internationalization of the main body of the futures market and the internationalization of the object of the futures market.

The internationalization of the main body of the futures market includes two aspects: one is to allow foreign entities to participate in the domestic futures market, and the other is to allow domestic entities to participate in the overseas futures market. At present, the previous period has become the second largest copper pricing center in the world after LME. The influence of Shanghai copper futures is getting bigger and bigger. However, to further enhance its influence and obtain global pricing power, it is necessary to further liberalize the domestic futures market. . We can learn from the QFII system, allowing qualified international copper industry production, trade, consumer and speculative funds to enter the domestic copper futures market, so that the price discovery function of Shanghai copper futures is fully utilized. In addition, there are still various restrictions on the participation of domestic enterprises in China's domestic enterprises. The main reason is foreign exchange control. At present, only 31 enterprises in China have obtained the qualification to participate in the coat protection. Since 2006, there has not been further liberalization of the domestic enterprise coat insurance. The enterprises that have been approved to participate in the coat protection are seriously insufficient compared with the demand for the coat insurance of the Chinese enterprises. In the case of insufficient capacity in the domestic futures market, solving the bottleneck of foreign exchange control, and further liberalizing the participation of domestic enterprises in the sea coat insurance is also one of the solutions to the market risks of the enterprises related to the copper industry chain in China.

The internationalization of the object of the futures market is mainly to further develop varieties that are in line with China's economic development and have a large circulation in the world, including lead , tin , nickel, etc., enriching the listed varieties of China's futures market, so that the company's various hedging needs can It is fully satisfied, which in turn promotes the development of copper futures.

Further development of derivatives such as futures is another major measure to reduce the risk of China's copper industry market.

At present, China has only a simple derivative of futures, and related derivatives such as options and swaps have not yet been launched, and the choice of enterprises is limited. Although the futures are launched earlier, the trading volume of today's copper options is much higher than that of futures. In 2008, LME further introduced swap transactions. It can be seen that the types of derivatives products such as commodities in China still need to be continuously enriched to avoid a single means for enterprises to avoid risks. In addition, in the current situation of insufficient copper pricing power, 24-hour electronic trading also needs to be developed, so as to avoid the current Shanghai copper being affected by the external disk too large, so that enterprises can not effectively cover the situation.

Generally speaking, the internal and external risks faced by China's copper industry are relatively large. Domestic related enterprises must reduce risks and transfer risks through various means and multiple channels. Relevant government departments should focus on strengthening industry integration to further obtain overseas copper mines. Resources support, in order to promote the long-term healthy development of China's copper industry, and thus escort the development of the national economy.

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