Wire and cable cost management is crucial

The wire and cable industry is an industry that relies heavily on raw materials, and the dependence on copper has never changed over the years. However, as we all know, the high price of copper materials and the special order contract issues in the cable industry have caused copper materials to increase or decrease, which is unfavorable for wire and cable manufacturers. Therefore, there have been many discussions on raw materials in recent years. There are also many discussions on vigorously developing aluminum alloy cables and strictly controlling production costs. Therefore, it is necessary to study the cost management of electric wires and cables.

Obviously, whether it is copper or aluminum, both constitute the main raw materials for the wire and cable industry. In 2011, the total output value of wire and cable manufacturing industry has exceeded one trillion yuan, ranking first in the world, and five years ago in 2006. The total output value of China's wire and cable manufacturing industry is less than 400 billion, and the output value has grown rapidly. It is also because the wire and cable industry in China is growing rapidly, and the demand for non-ferrous metals such as copper and aluminum is increasing. In recent years, electric power, communications, railways, rail transit, ships, automobiles, petrochemicals, construction, highways, and home appliances still maintain a large scale of investment. The speed of construction has accelerated, and the demand for wires and cables has also been born.

According to relevant statistics, the amount of copper used in wire and cable accounts for approximately 60-70% of the total copper consumption in the country, and the amount of copper used in various wire and cable products is roughly: about 20-30% of power cables, and about the wire and cable for electrical equipment. Accounting for 28-30%, winding wire accounts for about 26-29%, communication cables account for about 5--7%, and other cables account for about 4-5%. With the development in recent years, China's domestic wire and cable manufacturing companies have assumed extremely heavy cost pressures because raw materials such as copper, aluminum, and plastic accounted for more than 80% of the cost of wire and cable, coupled with energy prices and transportation costs. The rise in the cost of human resources is even worse for these companies.

In recent years, due to the soaring prices of the world copper ingot market, domestic wire and cable costs have skyrocketed, and almost all cable companies are facing a serious cost crisis. Some cable companies hope that the grid operators can change the bidding method and increase the contracted prices so that cable companies can overcome difficulties. However, more companies have begun to engage in irregular competition. At the same time, as China's wire and cable companies are numerous, small and dispersed, the disorderly competition and price reduction of the wire and cable industry have been exacerbated. In the face of rising prices of raw materials, the cost of wires and cables has risen, and manufacturers have shown the most “helplessness”. Because of the orders they place with electricity, communications, transportation, or the steel industry, the lead time is usually more than one year. On the day of delivery, the price on the contract is often not even the cost. Once the contract is signed, the price cannot be changed. Therefore, the cost pressure caused by rising raw material prices can only be borne by the company itself.

The price increase of copper, aluminum and other major raw materials has now seriously affected the survival of the wire and cable industry. Foreign cable companies have mature measures to cope with the increase in raw materials prices. Foreign wire and cable companies have established a good risk control system, through the signing of long-term supply agreements with suppliers, hedging, long-term trade contracts and other ways to avoid the risk of copper and aluminum price fluctuations; to adopt a centralized procurement department approach to enhance the company and suppliers The negotiation position, strengthen and improve the raw material risk control system and mechanism; some companies, such as Nexans and Superior Telecom, intend to extend the industrial chain, especially to the supply of copper materials, to weaken the risk of copper price fluctuations; multinational companies have established Control risk mechanisms for interest rate and exchange rate fluctuations. Multinational corporations are far lower than their domestic counterparts in asset-liability ratios, and are generally maintained at around 30%. Relatively speaking, the company’s assets are more secure.

As the cost of wire and cable has risen sharply, its sales price has been difficult to increase. Therefore, the market competition has become increasingly fierce, especially in the low-end wire and cable products market with relatively low technology added value. Industry insiders believe that the underlying causes of low-cost product competition are blind investment, overcapacity, and oversupply. On the one hand, due to the low investment threshold, a large number of companies have flooded into the industry, causing companies in the industry to “overuse too much”. It is understood that there are as many as 8,000 large and small enterprises in the wire and cable industry. The production capacity of these industries exceeded the market demand and there was a serious surplus. On the other hand, due to the low “threshold”, not only is the degree of concentration in the industry getting lower and lower, but also some “workshop companies” that do not necessarily have the necessary means of production capacity, quality control, and testing are allowed to become part of the industry. Counterfeiting, shoddy work, cutting corners, shoddy work, and shoddy production of cable products, and disrupting market competition by means of lowering sales prices have exacerbated the disorderly competition in the industry.

Quite a cable company believes that copper prices are higher and costs have risen sharply. Some small companies cannot afford it, and some have even stopped production. But there are still markets, millions of cable orders actually occupy a certain percentage. However, purchasers are not willing to accept the fact that the cost of cables has been raised due to the increase in copper prices. Cable companies are very difficult. Some companies have to sign contracts with users. The cable price can not be adjusted, but if there is another cable demand, we must also do it. "Inside the embankment, make up for damages outside the embankment." This is the unique "overlord clause" of the cable industry, which reflects the difficulties of the cable industry in the soaring price of copper.

Obviously, whether it is the unilateral rise of raw materials or the unique "overlord terms" of the cable industry, all of them are forcing the wire and cable industry to seek new ways of development, whether it is aluminum alloy cables with more stable performance and lower cost. Efforts to modify unreasonable “overlord terms” or to reduce costs through strict wire and cable cost management and more advanced production processes and technologies are all necessary. Especially in recent years, the wire and cable industry's profitability has been continuously reduced, the competition in the middle and low-end market has become incandescent, and it is even more demanding that wire and cable manufacturers start from a cost perspective and create a road.