On 21st Feb Chinese Ministry of Telecom announced a national policy to accelerate 5G rollout, aiming to use 5G Capital Expenditure as a way to stimulate the Economy after COVID-19 epidemic. This is similar to the response seen in 2009 post the GFC when infrastructure building for 3G was seen as way to get money into the system. 3G licenses were issued to the big three carriers (China Mobile, China Telecom and China Unicom).
China Mobile the largest consumer of optical fiber cable (OFC) globally, had announced its 2020 tender China Mobile Tender Points to Gradual Demand Pickup to procure standard OFC cables a month back. Our analysis of the tender had indicated an expected procurement of 119 Million fKm OFC at maximum bid limit price of US$11.0/fKm (pre-tax) over the next one year. With procurement volumes at 119mn fkm (~25% of global demand in 2020), clearly China Mobile is in a position to be the price setter and thus pressurize global pricing not withstanding the long-term nature of supply contracts in the industry.
China Mobile has launched a tender for second phase of 5G network rollout for setting up 232,000 5G base stations by end of 2020, up from 50,000 deployed by the end of 2019.
China Unicom announced speeding up of a large 5G base station expansion plan 250,000 up from 64,000 currently across mainland China by the end of 2020.
How China Influences the Global OFC Market ?
China Mobile came out with its tender for procurement of 105 Million fkm of optical fibre cables in Mar 2019, which saw bid prices in the range of $10.5 per fkm signaling a weak demand environment and putting pressure on global prices as the tender constituted about 23% of global demand. 2019 has witnessed a continuous decline in spot prices with current spot prices for optical fibers in the range of $5-6 per fkm, close to the marginal cost of production.
Our industry discussions suggest that the final OF pricing for the tender is closer to US$5.0/fKm, which is materially below expectations. Chinese 5G spending would preclude a fast recovery in global OF/OFC prices, our expectation was that final pricing would end up closer to 2019 levels of US$10.5/fkm (close to breakeven).
We remain confident of a demand recovery in 2021, led by growing data demand and 5G network deployment across key regions. With large telecom operators experiencing a surge in data consumption during COVID-19 period, we expect fiber demand to also increase to cater to demand.