2014 Optical Fiber and Cable Market Analysis and Outlook

In August 2013, the State Council released the "Broadband China" strategy and implementation plan. By December, the Ministry of Industry and Information Technology issued 4G licenses, heralding the arrival of the 4G era in telecommunications. The "Broadband China" strategy and 4G will undoubtedly bring a new round of rapid development to the optical communications industry, and will further drive the growth of the optical fiber and cable industry, which is great news for the domestic cable industry.

As of the end of December 2013, China Mobile's TD-SCDMA network had accumulated a total of 430,000 base stations nationwide, with cumulative total network investment exceeding RMB 150 billion. TD terminal sales have continued to achieve breakthroughs, doubling every year, with total TD terminal sales reaching 155 million units in 2013. In 2014, China Mobile aims to build the largest 4G network in the country, with the total number of TD-LTE base stations expected to exceed 500,000; by mid-2014, 100 cities are expected to have 4G coverage, and by the end of the year, 340 cities will have TD-LTE 4G services. In addition, it is expected that 4G handset models will exceed 200 this year, with plans to sell over 100 million TD-LTE terminals in 2014.

Meanwhile, China Telecom and China Unicom have both increased their network investment and construction. The increased network investment and construction by the three major operators is the direct reason why the optical fiber and cable industry continues to maintain a high level of industry prosperity.

At the policy level, government policy guidance will be a long-term factor boosting the prosperity of the optical fiber and cable industry. In August 2013, the State Council issued the "Broadband China" Strategy and Implementation Plan, which for the first time positioned broadband as a strategic public infrastructure, outlining development goals and pathways for broadband over the next eight years. The broadband strategy thus rose from a single-department initiative to a national strategy. During the national "12th Five-Year Plan" period, national investment in broadband network infrastructure construction will total RMB 1.6 trillion, of which RMB 570 billion will be invested in broadband access networks.

Influenced by policy, given the future importance and value enhancement of optical fiber network infrastructure, during the dominant broadband construction period, the prosperity of the optical fiber and cable industry will not see a major decline in terms of demand in the coming years.

In 2012, optical fiber demand reached 125.4 million fiber-core kilometers, an increase of 17.1% compared to 107.1 million fiber-core kilometers in 2011. China's optical fiber and cable demand accounted for 50% of the global demand of 251 million fiber-core kilometers. In 2013, domestic optical fiber demand is expected to reach 147.3 million fiber-core kilometers, a year-on-year increase of 17.46%. In the coming years, domestic optical fiber demand is likely to maintain a steady growth trend.

Figure 1 China Optical Fiber Demand

However, the steady growth of China's optical fiber demand may not necessarily bring sufficient development space to the entire optical fiber and cable industry. Chinese optical fiber and cable enterprises may not be entirely worry-free in the coming years, as the industry develops rapidly and overcapacity risks emerge.

In the optical fiber preform sector, which captures 70% of the profits in the optical fiber and cable manufacturing chain, with the release of production capacity from domestic optical fiber preform manufacturers such as YOFC, Futong, FiberHome, ZTT, and Hengtong, optical fiber preforms have shifted from being mostly imported to nearly meeting domestic production demand on their own. In 2013, the import rate of domestic optical fiber preforms dropped from the 2009 level to 23%. It is expected that by 2014, domestic optical fiber preform production capacity will be able to meet domestic production demand. Behind the shrinking import rate of optical fiber preforms is the rapid expansion of domestic optical fiber preform production capacity.

Figure 2 China Optical Fiber Preform Import Rate

In terms of optical fiber capacity expansion, domestic optical fiber production capacity exceeded 180 million fiber-core kilometers in 2013, a year-on-year increase of 27.54%. The new capacity added over the past year includes not only the 7 million fiber-core kilometers from YOFC and 8 million fiber-core kilometers from Hengtong, both existing industry players, but also the 10 million fiber-core kilometers from Kailong Technology, a new entrant to the optical fiber industry. In terms of domestic industry supply and demand, the 180 million fiber-core kilometers of optical fiber production capacity in 2013 has already met the domestic demand of 147 million fiber-core kilometers.

Figure 3 Domestic Optical Fiber Production Capacity

The industry experienced significant capacity expansion in 2013, but looking at 2013, the optical fiber price was around RMB 68 per fiber-core kilometer, which is also a precursor to industry overcapacity. Signs of overcapacity in the optical fiber and cable industry have already emerged.

Figure 4 Domestic Optical Fiber Price

In the past two years, the three major domestic operators have increased their procurement of optical fiber and cable. On the one hand, this indeed demonstrates that during the Broadband China strategy period, the prosperity of the domestic optical fiber and cable industry has improved. However, behind this, the negative factors brought about by the frenzied capacity expansion of related domestic enterprises during this period, such as a sharp increase in production capacity and declining product prices, are equally worthy of attention from industry enterprises.

As Laozi said: "Misfortune is that which fortune leans upon; fortune is that which misfortune hides beneath." The development of any thing has two sides, and fortune and misfortune often coexist. Therefore, the domestic optical fiber and cable industry must remain rational, and guard against overcapacity during production expansion, so as to avoid "extreme joy begets sorrow."