Communication Cable Industry in China

Historical development of communication cable market in China

Communication copper cables were widely used in the construction of telecommunication network, especially before the 3G network era. With the increasing number of fixed broadband subscribers as well as the development of mobile communication network, diversified Internet services, such as online high definition video, game and shopping boosted the demand for high speed and quality telecommunication network. Hitting the technical edge of transmitting speed and distance, communication copper cable is experiencing a gradual replacement by optical fiber cable in the telecommunication network construction. However, due to the higher cost of optical fiber cables installation and the technical difficulty in directly upgrading copper communication network to optical fiber network, communication copper cables are still frequently used to upgrade communication network, especially in those schools, residential compounds and commercial buildings which are originally covered by communication copper cables. Also, the electric power transmission capability makes communication copper cable essential as a part of the overall telecommunication network system, especially at the terminal part which connects the system to individual users (the last-mile network). These communication copper cables, serving as power cables, are widely used in the communication server rooms, communication stations, and high-rise buildings, and could hardly be replaced by optical fiber cables due to its unique application features. Therefore, communication copper cables still account for certain market shares and a substantial replacement will not take place in the next 5 years. The scaled construction of optical network started in 2000. During the early stage, the supply of optical fiber cables heavily relied on imports. Later, with the increasing domestic production capacity of optical fiber cables, the reliance on imports gradually decreased. By 2006, the domestic manufactured optical fiber cables had already accounted for a majority of the total optical fiber cable supply in China. In 2008, China government initiated a strategy to further promote the use of optical fiber cables (“光进铜退”). Moving forward, with sustained market demand and government support, the optical fiber cable industry is expected to record a promising growth.

Current landscape of communication cable market in China

Currently, the communication cable market in China significantly depends on the development of telecom infrastructure. In the current market, the construction of mobile communication network, fixed-line broadband network and fixed-line telephone network consumed about 90% of total communication cables while the rest was used for the construction of special communication network for TV and broadcasting, military use, oil and gas industry, as well as enterprises with exclusive communication network. The sales volume of communication copper cables decreased from about 49.0 million pkm1 in 2011 to about 39.0 million pkm in 2016 at a CAGR of about -4.4%. The declining trend is estimated to continue and even accelerates from 2017 to 2020 at a CAGR of about -6.8%. The sales value of communication copper cables decreased from about CNY22,387.1 million in 2011 to about CNY 11,302.2 million in 2016 at a CAGR of about -12.8%. The decline was attributed to the decrease in both the sales volume and selling price of communication copper cables. The decrease in market demand and the copper price together dragged the historical selling prices of communication copper cable downwards. Moving forward from 2017 to 2020, the decrease is estimated to slow down to a CAGR of about -4.5%, benefiting from the expected growth in the price of communication copper cables which is mainly due to the expected increase in the price of copper, the key raw material of communication copper cables, as the selling price of communication copper cables is usually in line with the trend of copper price. The expected increase in copper price is mainly based on the expected rising demand for copper in U.S. and the drive from China’s huge investment in infrastructure. Such expected growth in the price of communication copper cables will partly offset the expected accelerated decrease in the sales volume. From 2011 to 2016, the sales volume of optical fiber cables in China increased from about 112.5 million fkm2 to about 207.7 million fkm at a CAGR of about 13.0%. The steady increase was primarily driven by the strong demand which is a result of China government policy. Moving forward, the sales volume will continue to grow at a CAGR of about 9.7% from 2017 to 2020. The sales volume is estimated to reach about 303.2 million fkm in 2020. Despite the sustained growth of sales volume, the sales value of optical fiber cables fluctuated which was mainly caused by the fluctuation of the price of optical fiber. In 2013, the sales value and average selling price of optical fiber cables witnessed a decline. This was mainly because domestic companies started production of optical fiber preforms at that time, which are the key materials for producing optical fiber and optical fiber cables, relieving China’s reliance on import of optical fiber preforms. On the other hand, along with the release of the government’s Broadband China (“宽带中国”) strategy, Chinese companies made significant investment to expand the production capacity of optical fiber cables, while the increase incapacity was higher than the actual demand growth. In 2013, China’s total production capacity of optical fiber cables increased by 21.3% compared to the previous year, while the demand growth was only 12.5%; and the production capacity exceeded the actual demand by 39.2%. The over-capacity also caused decrease in selling prices of optical fiber cables. However, the optical fiber price and sales value picked up after 2014, as the investment from telecommunication network operators under the ”Broadband China” strategy started to be released. The large central procurement project of China Telecom in the end of 2016 and the expected huge telecommunication infrastructure investment from the new telecommunication network operator, namely China Radio and Television Network Ltd. (中国广播电视网络有限公司) will generate substantial demand for optical fiber cables in the next few years. Yet, manufacturers take times to further expand their production capacity to meet the high market demand. Thus, it is estimated that the average selling price of optical fiber cables will sustain to grow at a CAGR of about 3.8%. In general, the CAGR of sales value of optical fiber cable from 2011 to 2016 was 8.6%, and the forecasted CAGR from 2017 to 2020 is about 12.6%.

Current landscape of optical fiber market in China

The demand for optical fiber is witnessing significant growth, along with the development of the optical fiber cable market. In 2016, the total sales of optical fiber in China increased to about 281 million fkm, growing at a CAGR of almost 15% during the period from 2012 to 2016. The growth is expected to sustain in the next 5 years, due to the continuous demand of China’s telecommunication infrastructure development.