China Mobile demand is up, but will prices follow suite?
The announcement outlines the expected bidding process which will be based on a quota system. The number of successful bidders is expected to be between 10-14 with the largest possible distributor share reaching 21.57% of the total tender volume, equivalent to 30.9 M F-km. CRU understands that eligible participants will have an opportunity to procure bidding documents online between the 8-13 September. The submission of e-bidding documents must be completed and submitted to China Mobile by 10am local time on 11 October. Summary details of this year’s tender compared to the prior tender can be seen below.
According to the announcement, the expected volume in sheath-km is around 4.5 M which implies an average fibre count of 32. The maximum tender value allowed to submit is also set to RMB9.9bn excluding VAT and it should be noted China Mobile have advised this tender will satisfy purchase demand for a period of one year. However, we need to be aware this is not always the case. In fact, the last two tenders from China Mobile have seemingly satisfied demand well beyond the 12-month period.
Current market sentiment is positive surrounding this announcement, perhaps not as good as earlier expectations but the 8.14% allocated to the 5th place position is higher than some market participants expected and will help reduce competition somewhat amongst the ‘Big-5’. This should act to support prices at a higher level. CRU expects final settled prices will increase compared to the prior tender, although the extent to which we will see gains will remain unknown until the tender awards are announced. A review of the ‘Big-5’ winning shares and volumes are summarised below.
Based on prior tenders, we typically witness an approximate 40% drop in implied fibre prices from the period of announcement to awards, on this basis early predictions suggest we could still see an approximate 10% increase in both cable and implied bare fibre prices compared to prior tender on a US$ basis. Much of this gain would, however, be exchange rate driven. Large risks surround this view, which will depend heavily on just how competitive the bidding process will be this year.
In terms of demand, it certainly is a positive announcement. Volumes in this tender are up by 20% compared to the prior tender, although as mentioned in previous reports, CRU understands there may be a shift in China Mobile’s overall procurement plan for the coming 12 months. Indeed, anecdotal evidence suggests the carrier may be looking to secure virtually all of its expected requirements through this tender rather than relying on spot market transaction to top up volumes throughout the year. These alone can range from 10-15% of annual demand from the carrier according to recent history. Regardless, it does provide the market with some direction and a sense of security over the coming quarters and should help drive spot market prices higher once settled.
In terms of CRU’s forecast, this announcement is largely in line with expectations and will do little to shift our annual expectations for Chinese demand in 2021, especially given the timing. The outlook for Chinese demand in 2022 is subject to minor upgrades, however.
CRU will be tracking developments around China Mobile’s tender and our view on wider Chinese demand closely over the coming weeks and will be updating subscribers appropriately.Explore this topic with CRU
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