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China mobile tender awards provide boost to prices

China Mobile released details regarding the awards of their 2021/2022 loose-tube tender earlier today. As expected, competition for the 143.2M F-Km tendered for was strong, although lacked the intensity of previous years.

According to the announcement, final settled prices have jumped significantly versus the prior tender, up around 58% when looking at weighted average cable prices in RMB including VAT. 

It appears a more aligned approach to bidding across the ‘Big-5’, in combination with a brighter outlook for demand and a far better-balanced domestic market, has provided producers with the right footing to push for increases. By all accounts they were successful. CRU understands this announcement has been met with optimism in the Chinese market with many of the top cable producers’ stock prices reflecting this sentiment.

Figure 1: The ‘Big-5’ won a more even share compared to the last tender

YOFC took the number 1 spot, winning a 19.96% share of the 143.2M F-km total, equivalent to 28.6M F-km. This was achieved with a bid price of RMB 64.37 or $9.98/ F-km (excluding VAT). The ‘Big-5’ took home far more equal shares and there were no significant ‘losers’ in this tender compared to last year. 

Despite having the highest bid price of all 14 winners (RMB66.20/ F-km ex-VAT), ZTT took the 4th spot and secured an 11.97% share, equivalent to 17.1M F-km. This is a significant improvement on the meagre 2.6M F-km won in the prior tender and should help secure base volumes at the company this year. Regarding Fiberhome, their volumes were virtually unchanged, Hengtong secured an additional 3.8M F-km, whilst Futong (Hangzhou + Tianjin) lost around 4.4M F-km (See Table 1). 

Table 1: 'Big 5' Contracts from China Mobile’s Loose-tube Telecom Tenders

The key take-home message, however, relates to price. The importance of a 58% jump versus prior tender cannot be understated. It will have a huge impact on the domestic market and, generally speaking, help shift the industry from loss-making into profit-taking. While it is difficult to translate the cable tender awards into a meaningful price point for bare fibre, it is suggestive of an implied fibre price in the region of $3.90/ F-km (Ex-VAT). CRU expects domestic G652.D bare fibre spot prices will correct upwards over the coming months in response to this positive announcement and a higher tender price floor. 

CRU estimates the cost of production, at the majority of efficient facilities in China to be in the region of $3.30 / F-Km (marginally lower in exceptional circumstances). With spot prices destined to meaningfully surpass this level in the near-term, it does raise the risk of encouraging back previously mothballed capacity and higher utilisation rates. This may act as a cap on spot prices unless the domestic and export market can absorb such volumes, or if unchecked, could lead to a build up of inventory once again.

Looking ahead at the remainder of the year, CRU understands China Telecom has just released details of their upcoming tender, which is set at 43M F-km. With a higher tender price floor now set by China Mobile, we can also expect to see similar, if not higher, award prices in this tender. Higher domestic Chinese prices should begin to trickle through to international markets and raise floor prices elsewhere, providing much needed respite to producers and support higher margins from next year. 

CRU’s Wire and Cable Team will be tracking market responses and implications to the wider industry closely in our regular services; Optical Fibre and Cable Monitor and Telecom Cables Market Outlook. 

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