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Added Grid Investment Can Hardly Reinvigorate 4th Quarter Copper Demand

China’s power sector accounts for nearly half of its copper volume consumption, and the State Grid’s annual investment data holds powerful influence over copper demand. At the State Grid’s half year work meeting, the authority sharply added investment in rural and urban distribution grid, both the State Grid and the Southern Power Grid added grid fixed asset investment. When the state government is generously increasing grid investment, can it fuel the demand for grid copper usage?

SMM holds the view that the additional grid investment project will not be implemented immediately, therefore it cannot instantly boost copper consumption within a short period. Judging from SMM survey results, since the end of August the State Grid bidding projects increased to certain degree, in September copper usage volume of some wire and cable manufacturers rose slightly, but there is no very obvious significant increase.

At the beginning of the year, the State Grid announced its plan to invest 420.2 billion yuan in 2015 for grid construction, which is 9% higher than the actual completed investment amount in 2014 on Y-o-Y basis, the growth rate is far slower than the 14.1% growth margin in 2014.

According to data published by the National Energy Administration, from January to August this year the State Grid completed 226.2 billion yuan of basic construction investment amount, which is 55% of last year’s completed investment amount of 411.8 billion yuan, but less than 50% of the total investment amount after extra addition in the year, the growth of grid construction investment amount presents obvious slowdown trend, this is undoubtedly another piece of bad news for the already weak copper market.

According to SMM statistics, in the first 8 months of this year, operating rate of electric wire and cable is inferior to that of last year. However, near the end of August, the State Grid adjusted fixed asset investment program for 2015 from 439.6 billion yuan to 467.9 billion yuan, and the added investment is mainly used in rural grid upgrading projects, and some ultra high voltage projects; the Southern Power Grid also increased the 70 billion yuan fixed asset investment determined at the beginning of the year to 83.4 billion yuan. Grid investment shifted focus to distribution grid, the density of copper-usage being involved is higher than the main grid, and it is expected in 2015 that the nationwide investment amount of power distribution grid is 300 billion yuan.

Looking ahead into the fourth quarter, SMM considers that the 4th quarter is a traditional consumption off season of electric wire and cable, outdoor construction has slowed down or remained stagnant due to weather impact, the added grid investment can hardly give any sharp boost to drive up demand.