Asian Metal: Mr. Wang, thank you for accepting our interview. Would you please first give us a brief introduction of your company?

Mr. Wang: Located in the industrial cluster zone in Gongyi, Henan Xinchang Copper Group Co., Ltd. is a large private copper processing company with registered capital of RMB101.18 million (USD15.07 million). Having copper processing capacity of 300,000tpy now, it produces copper rod, bar, busbar and so on, which are mainly used by wire and cable producers and high-end electrical raw material industry. The company, currently with more than 500 employees, focuses on the copper business and aims to ramp up technological innovation, push ahead with transformation and upgrading of product portfolio, achieve product diversification and improve production technology level. Its products are mostly sold to surrounding provinces including Henan, Shaanxi, Shanxi, Hebei, Shandong, and Hubei. The company reported total production value of about 7 billion yuan (1.04 billion US dollars) in 2019 and set a target of 10 billion yuan (1.5 billion US dollars) for 2020.

Asian Metal: Despite the overcapacity in Chinese copper rod market, your company added a new domestic-made continuous casting and rolling production line with a capacity of 220,000tpy in H1 2020. What's behind the decision to build the production line?

Mr. Wang: Chinese copper rod market is indeed in a surplus on the whole at the moment. However, the demand for high-end copper rod from central China has been growing over the past few years, especially from Henan where there was no high-end copper rod produced by shaft furnace before 2020. Our company used to produce copper rod from copper scrap, but due to the strong end-user demand for high-end wire-harness copper rod as well as for the long-term development of our company, we decided to tap refined-copper-made rod market by adding a new 220,000tpy copper rod production line equipped with domestic-made shaft furnace. We'd like to consider it as an industrial transformation and layout to adjust to local market demand and current situation.

Asian Metal: What's operational status of your company's new copper rod production line since first coming on stream? Are the current sales performance and market development meeting expectations?

Mr. Wang: The new refined-copper-made rod project has been in normal operation so far on the whole but there are inevitable problems. Firstly, we met problems related to the supply of raw material. Copper cathode prices have been on the rise since this April with the premium staying at a relatively high level, so our production cost keeps high. Secondly, amid the relatively large price difference between refined copper and copper scrap, the price advantage for copper rod made out of copper scrap is more obvious, which greatly impacts sales of copper rod made from refined copper. Besides, as copper price keeps moving up, downstream consumers are less willing to make purchase, which also restricts the production scale of refined-copper-made rod. Lastly, coupled with production restriction for environmental protection policy in Henan, our new project has been maintaining an operating rate of 60-70% on the whole since commencing production. Despite all those factors, our sales performance and market development for this year have been basically met expectations. But we still have a lot to improve. Firstly, we need to make tailored-deep-processing of products to cater to demand from high-end clients. Secondly, we need to explore market much more actively to attract customers with higher quality requirements.

Asian Metal: What's your plan for copper rod capacity expansion or deep-processing of copper products in the future?

Mr. Wang: The above-mentioned new production line is our first step in industrial upgrading and expansion targeting the high-end copper rod market. Besides, we are also making changes to product portfolio based on the demand from new infrastructures, 5G and new energy industries. Lastly, we also plan to start copper products processing business, with related work underway.

Asian Metal: With the price gap between refined copper and copper scrap widening further, the sales of copper rod made from copper scrap were encouraging in Q3 2020. What's your opinion on the role and position of this product?

Mr. Wang: I believe there is huge domestic demand for scrap-copper-made rod. Firstly, there is significant demand potential for the material from wire and cable sectors in new infrastructure projects, especially against the backdrop of a big improvement in product quality over the past few years which can meet most of the market demand. Secondly, amid the ongoing development of China's market-oriented economy, a number of plants and projects under construction have demand for wire and cable, which can be fully met by scrap-copper-made rod with improved quality. Besides, emerging industry like new energy vehicle industry also has demand for copper alloy, and the derivative product of scrap-copper-made rod, such as copper alloy rod, caters to the development of related industry due to its natural characteristics. There are already national standards for copper rod made from copper scrap and I believe the market outlook is promising.

Asian Metal: What's the current supply situation of copper scrap in China? Are there any impacts and restrictions on your company's copper-scrap-made rod production line? What changes do you think the new copper scrap import policy which took effect early this November would bring to the industry?

Mr. Wang: The domestic supply of copper scrap is relatively tight on the whole. In order to ensure normal production, we usually need to adjust to changes in the market by marking up our purchase price. Besides, with lower quality of domestic copper scrap over the past few years, it's becoming more difficult for us to select the product as the quality of copper rod made from copper scrap also declined and we need to carry out stricter test, inspection and classification and improve production technology, optimize the sorting process and prolong production time, which means higher operating cost and lower profits of scrap-copper-made rod.

Since the implementation of the revised copper scrap import policy, the market hasn't seen a sharp increase in the supply of copper scrap as customs take striker inspection and examination on imported copper scrap. It is learnt that there are a number of copper scrap goods detained at ports due to late customs clearance. I believe that with further implementation of the policy, the tight supply of imported copper scrap would be gradually alleviated in 2021, but there is hardly any significant improvement before the end of this December.

Asian Metal: Chinese upstream and downstream copper-related companies are hit hard by COVID-19 pandemic this year. How do you think this would affect copper industry?

Mr. Wang: The impact is tremendous. Firstly, the whole copper market fluctuated drastically after the COVID-19 outbreak, with prices surging to around RMB57,000/t (USD8,715/t) from as low as RMB36,000/t (USD5,504/t). Secondly, along with fluctuations, especially in raw material prices, the demand for copper rod changed a lot both at home and abroad, but the recovery is obviously faster in China than overseas markets thanks to the effective control of the epidemic. Thirdly, the outbreak had a relatively huge impact on the real economy overseas, which further impacted Chinese copper rod industry, and the results, including the initial sharp decrease and recent recovery in foreign trade orders, are notable. Lastly, uncertainties over supply in international trade due to COVID-19 pandemic and the consequent international trade barrier, coupled with changes in overseas supply and demand, RMB exchange rate as well as trade war, all exert severe impact on Chinese copper rod industry.

Asian Metal: As Chinese economy transitions from high-speed growth to high-quality development, China tended to reduce investment in power grid construction in the past few years. How do you think Chinese copper rod companies should deal with this situation?

Mr. Wang: Firstly, China's economy is still expanding along with larger scale of infrastructures, so the domestic demand for copper is unlikely to shrink in the short term. It is therefore crucial that companies can cater to changes in demand and new development directions for copper industry and make tailored transformation and upgrades. Secondly, with Chinese economy transitioning from high-speed growth to high-quality development, there is a growing call for higher quality and more diversity of copper products. Copper rod, as an intermediate product of copper, can be deep-processed in multiple ways and therefore holds development potential worth exploring. Thirdly, the application of copper as a conductor remains comprehensive and extensive, and the traditional industry won't become the bottleneck of high-quality economic development. For copper industry, it will be an inevitable process to promote product optimization alongside transformation and upgrades.

Asian Metal: Copper prices have been surging again in China since late November. What's your opinion on copper price movement before the end of this year?

Mr. Wang: I reckon that copper prices would keep fluctuating around high levels before the end of this year but the fluctuations might be more drastic, with mainstream copper prices to edge up. There are still many uncertainties about macro and fundamental factors in domestic and international markets. Despite the sound recovery and resilience in domestic copper demand, with the best performance so far globally, the uncertainties over copper supply and demand overseas remain enormous due to COVID19. Meanwhile, the disruption to European and American economic recovery from the pandemic and various uncertainties brought by U.S. presidential election would lead to price fluctuation, so Chinese copper prices are highly likely to keep fluctuating. However, against the backdrop of the ongoing quantitative easing implemented by the world's major economies, copper prices are expected to edge up further before the end of this year.