Cru: how the new coronavirus affects the global optical fiber Market

category:Internet
 Cru: how the new coronavirus affects the global optical fiber Market


The outbreak of a new coronavirus (2019 ncov) in Wuhan, Hubei Province, resulted in an extended Spring Festival holiday. At the same time, the government implemented traffic control to curb the spread of the virus.

During this period, demand for fiber optic cables is generally weak, but production will generally continue, although production will decline. It should be noted that Wuhan alone accounts for more than 20% of Chinas optical fiber preform production capacity, and any significant and sustained supply disruption may have a significant impact on domestic and global supply. In addition, any impact on other major fiber optic cable manufacturing provinces, such as nearby Jiangsu, will exacerbate the problem, but in the early stages of the current outbreak, all assessments remain highly speculative.

Background: what is 2019-nCov? What is the latest reaction of the provincial government?

Since the outbreak of the virus, 60 million people in 15 cities in China have been totally or partially blocked. Most importantly, the Chinese government extended the public holidays for the lunar new year to extend the time for people to return to work. In Shanghai and Suzhou, Jiangsu Province, the holiday has been further extended to February 9. At the same time, the Hubei provincial government has decided to further postpone the resumption of work for various enterprises no earlier than 24:00 on February 13.

What does this mean for the fiber industry?

Among Chinas Five fiber optic manufacturers, Changfei and Fenghuo are located in Hubei Province. Changfeis wholly-owned prefabrication plant in Wuhan, with an annual production capacity of 64 million core kilometers, is one of the largest prefabrication plant in the world. At the same time, Changfei and Xinyue group established two joint ventures in Qianjiang City, Hubei Province, with a total capacity of 64 million core kilometers. In addition, the joint venture between Fenghuo and Fujikura is also located in Wuhan, with an estimated capacity of 33 million core kilometers.

We expect that in 2020, Chinas optical fiber preform production capacity will be 460 million core kilometers, that is to say, Wuhan alone (the joint venture of Fiberhome and the wholly-owned factory of Changfei) will account for 21.0%, which is a large share. If we include the joint venture between Changfei and Xinyue group, this share will increase significantly in Hubei Province, reaching 35.0% of Chinas domestic preform production capacity, equivalent to 20.3% of the worlds.

In addition, the influence of regions outside Hubei Province on Chinas optical fiber industry needs to be considered. For example, Changfei is also providing preform products to other enterprises at home and abroad. Such supply chain disruption may have a broader impact.

In the production of optical cable, Changfei and Fenghuo are also concerned. In our latest Telecom Optical Cable Market Outlook report, CRU estimates that the annual production of Changfei and Fenghuo will be about 46 million kilometers in 2020 before the 2019 ncov outbreak. Although Wuhan is less important in the optical cable market than the prefabricated bar, it still accounts for 18.5% of the domestic market and 9.7% of the global production. If we add in the output of Kaile technology, which is located in Jingzhou City, Hubei Province, about 6-7 million kilometers, the percentage will rise to 20.9% and 11.0%.

If it had been a few years ago, any potential impact would have increased

With a series of expansion and construction of new factories outside Wuhan and Hubei. Although it is no doubt that the production halt and decline of preform, optical fiber or optical cable in Hubei will affect the domestic market, the potential impact has now been reduced.

If we look at Hubeis share of domestic preform capacity in the past few years, we can see from the chart below that in 2018, Hubei actually accounted for nearly 42% of Chinas preform capacity. With the establishment of new factories in diversified businesses such as Jiangsu, Shandong and Zhejiang, Chinas dependence on Wuhan Optics Valley and other regions in Hubei Province has finally been reduced, which may help China to avoid the impact of the 2019 ncov shutdown to some extent.

Wuhan: an important strategic base for preforms, optical fibers and optical cables, how does it affect the international market?

As mentioned before, Wuhan and even Hubei are in a strategic position, which is the key channel for numerous bulk commodity trade including optical fiber. It involves both domestic transportation and export to international market. In fact, if we observe Chinas bare fiber export according to the location of the port, we can clearly see the importance of Wuhan and Shanghai in international trade. If the key factories in Hubei stop production, we may see that the export volume is limited and the whole domestic optical fiber industry will also be affected.

However, given the current low average operating rate in China, fiber manufacturers elsewhere may increase production to offset any potential decline in Hubei production. In addition, manufacturers can also use inventory resources to supply customers.

Can the cut-off period restore balance to the domestic market?

This is certainly possible. As we discussed earlier, extending the start-up time of Hubeis factories will at least lead to a temporary stagnation of production in the province, although the decline in production during the Spring Festival is normal. With this in mind, based on the average weekly production in 2019, even if only two weeks of closure of the prefabrication plant in Hubei Province, it is possible to reduce the annual production of prefabrication rods in China by at least 1.3%.

From the perspective of bare fiber, CRU still believes that the inventory in the domestic market has reached 24 million core kilometers. In order to achieve the balance again, assuming that the output and demand of other factories do not change, the factories of Changfei and Fenghuo will need to be closed for nearly eight weeks.

When will it be improved? It is not clear when measures to reduce the spread of the virus will end. At present, we expect employees from outside Shanghai and Suzhou to return to work next week, while employees from Hubei will return to work on February 13. However, the spread of the virus is still accelerating, so some restrictions are likely to continue into February, and there is evidence that this is happening. Although it is still uncertain, we need to realize the importance of Wuhan and even Hubei Province to the optical fiber industry is self-evident. At present, there are many unknown factors about the possibility of virus transmission, the response of the Chinese government, further transportation restrictions and the impact on logistics. Source: c114 communication network editor in charge: Liao ziyao, nbjs10040

It is not clear when measures to reduce the spread of the virus will end. At present, we expect employees from outside Shanghai and Suzhou to return to work next week, while employees from Hubei will return to work on February 13. However, the spread of the virus is still accelerating, so some restrictions are likely to continue into February, and there is evidence that this is happening. Although it is still uncertain, we need to realize the importance of Wuhan and even Hubei Province to the optical fiber industry is self-evident.

At present, there are many unknown factors about the possibility of virus transmission, the response of the Chinese government, further transportation restrictions and the impact on logistics.