Competition predicament of transformer industry in China

With the rapid development of economic construction, China has invested in power supply construction and power grid transformation projects for many times, which strongly stimulate the continuous growth of various transformer market demand. In particular, under the favorable policy support of the state to vigorously support the revitalization and development of the national equipment manufacturing industry, our transformer industry has made great progress, showing a trend of sustained and rapid development.

There are still worries about the development of the industry

Transformer is one of the key equipment in power system, its performance directly affects the safety and reliability of power grid operation. The design and manufacturing capability of transformer represents the comprehensive technical level of the whole electric power equipment industry. After years of development, China's transformer design and manufacturing technology has become very mature, not only the total volume of transformer production ranks among the top in the world, but also mastered the core technology of a large number of key power transmission and transformation equipment from 750 kV to 1000 kV UHV AC, ±800 kV UHV DC, and so on, increasing its international competitiveness.

However, behind the rapid development of the transformer industry, there are still a variety of troubles and hidden worries. At present, the most prominent problem is low price competition, disordered competition, seriously disturbed the market order. Recently, several transformer manufacturers have reflected: the current industry low price competition, vicious competition is increasingly serious, and this price war has been spread from low voltage and small capacity products to high voltage and large capacity products, has caused great harm to transformer manufacturers, even the whole industry.

What is particularly worrying is that, if left unchecked, it is only a matter of time before users are hurt. The result would be a race to the bottom, with "no one hurt in the end".

Data shows that the annual demand of transformer in our country is about 1.5 billion KVA. At the same time, the transformer industry in China has a large scale, small and medium-sized enterprises, low industrial concentration, annual production capacity of about 3 billion kVA, in a serious surplus in the market.

Since 2009, the speed of national power construction has slowed down, and the domestic demand for transformers has decreased. Especially, equipment demand enterprises use centralized bidding to purchase transformers. As a result of winning the bid at a low price, the market competition is unprecedenedly fierce, and also leads to the price competition of equipment manufacturers. Currently, some transformer products end up selling for as little as 80 percent of the cost of raw materials.

The average profit rate of enterprises enters the "negative Era"

Research reports show that in the 1970s and 1980s, the average profit margin of the transformer industry was about 20%; It was about 8% around 2010. Nowadays, the average profit rate of 750 kV and below products of most transformer manufacturers has entered the "negative era", which directly leads to the low efficiency operation of Chinese transformer manufacturers in recent years. Enterprises in order to survive, but can only reduce research and development investment, looking for low-cost materials amortized low cost, and even transformer enterprises sacrifice product quality for malicious competition, market order is increasingly chaotic.

It is understood that not only the low voltage and small capacity transformer field has become the worst disaster area of the price war, even if the technical content is relatively high, the number of manufacturers of high voltage, large capacity product field has not been spared, the price war is becoming increasingly fierce, and the fields involved show a trend of further expansion. From power supply to power grid, from wind power to photovoltaic and other new energy industries are also not immune.

According to statistics, since 2012, the bidding has been awarded to 30 million thermal power units and 57 600000 thermal power units, the lowest price and the lowest bid accounted for 78% of the projects; In the past three years, the bidding price of conventional thermal power main transformer products has dropped by more than 15%, and many transformer manufacturers are in a state of loss or serious loss. Moreover, the wind and photovoltaic industries are even more mixed because of the low barriers to entry. The difference between the highest bid price and the lowest bid price is more than 20 percent, which directly leads to endless product quality problems.

According to a research and development of high voltage, large capacity products based enterprise boss revealed that the result of this price war, vicious competition, has caused long-term "blood loss" of manufacturing enterprises. Especially in the national power construction slowdown, investment reduction, market demand shrinkage, the price war is worse to accelerate the manufacturing enterprises into difficulties, or even difficult. He said that in the long run, a number of Chinese national transformer core backbone enterprises carefully cultivated by the state will not survive, or will decline.

The expert solved the dilemma

How to crack the current predicament of Chinese transformer industry? Zhu Yinghao, a leading expert in the industry and academician of the Chinese Academy of Engineering, believes that: in order to prevent low price promotion, the superior authorities should develop a quality-oriented transformer bid evaluation method. For example, energy-saving distribution transformers are clearly in accordance with the international general LCC(full life cycle cost) evaluation method, reliability index is listed in the first place, there should be requirements in product quality, production capacity should be specified, testing equipment should meet the accuracy requirements of energy saving and consumption reduction, product quality should meet the requirements of the latest national standards or IEC standards, There should be sudden short circuit, lightning impact, partial discharge measurement report, and loss tester to meet the requirements of national standards.

In addition, he believes that the bidding enterprises should have qualifications, for the initial production or performance of the enterprises, there should be a regulation of evaluation indicators. For enterprises with serious quality problems in operation and those whose actual price is lower than the cost of materials, special provisions shall be made on their bidding qualifications in bid evaluation. In a word, can not only take a single loss value and reported value as the basis for bid evaluation.

An industry association official said that as demand has fallen sharply, competition has become fiercer and companies have to cut prices as low as possible. Low product prices shrink enterprise profits, so many enterprises in transformer products on jerry-built, shoddy, in order to recover the profit loss brought by low prices. Transformer as an important equipment of power grid operation, its vicious competition caused by low-quality products into the market, no doubt for our power grid security buried a time bomb.

In order to completely change the current chaos of the transformer industry price war, based on the opinions of industry experts and senior executives of several enterprises, relevant constructive suggestions are put forward:

First, we should fully see the good opportunities facing the transformer industry and boost the confidence in the future development of the industry. At the national macroeconomic level, the implementation of the "One Belt, One Road" strategy has been launched, which will play a vital positive role in resolving and releasing domestic excess capacity. At the same time, the state vigorously promotes structural adjustment and industrial transformation and upgrading, which also brings good opportunities to enterprises. Recently, the Ministry of Industry and Information Technology, General Administration of Quality Supervision, Inspection and Development Commission jointly issued the Power Distribution Transformer Energy Efficiency Improvement Plan (2015~2017), which put forward specific guidance and implementation measures for the transformation and upgrading of enterprises. The majority of enterprises should actively follow and implement the spirit of the national policy, vigorously promote scientific and technological innovation, improve product quality, in order to obtain the initiative of competition.

Second, we should give full play to the role of industry associations and carry out extensive market research led by associations. On the basis of fully mastering the "big data" of the industry, reasonable guiding prices of products should be formulated to guide manufacturing enterprises to offer reasonable prices, so as to improve market competitiveness by providing high-quality products and services, rather than survive through vicious price wars. At the same time, it calls on the user enterprises to take the quality of products as the important standard of bid evaluation in accordance with the international general rules, and to restrict the vicious price competition which is obviously lower than the material cost.

Third, should vigorously play the role of users, from the source of procurement to eliminate low bid. User enterprises should be fully aware that low price bidding and low quality products is a certain inevitable connection, at present, many products bid price has been close to or lower than the price of raw materials, and the transformer manufacturing cost of raw materials accounted for up to 70%. In this situation, manufacturing enterprises will inevitably choose low-price materials for survival, or even take risks to choose low-quality materials, which will inevitably lay hidden dangers for the safe operation of the power grid and directly relate to the national power security.

Fourth, we should give full play to the role of manufacturing enterprises, based on the long-term development of enterprises. Manufacturers should fully realize that there is no winner in a price war, which is also a short-term behavior of companies. Only by sticking together, strengthening lean management, accelerating product technology innovation, accelerating product upgrading pace, providing users with more intimate services and creating more value can we truly enhance the core competitiveness of enterprises. Otherwise, the enterprise will not be able to achieve sustainable and healthy development.