China continues to fuel fibre optic cable demand growth

In 2014, the world's optical cable market rose 18%. This was the highest growth rate for the world total since 2009, when China's demand shot up 89%. In 2015, after three quarters, global demand was up 18% compared with the first three quarters of 2014. In the remaining quarter of 2014, however, further weakness in South America's demand and a slight slowdown in some other large markets could put the year-over-year growth for all of 2015 slightly below 18%.

The main contributor to the world market's growth so far this year has been China, which currently is about 55% of the world market. China's optical demand, as measured in fibre-km, increased 29% in the first three quarters of 2015, compared with the first three quarters of 2014. The total for all markets except China has shown a year-over-year growth rate of 6% for Q1-Q3 2015. This 6% growth includes some high-growth markets, such as Mexico, the US, France, Spain, and several countries in Southeast Asia, offset by low growth or decreasing markets in Brazil, Russia, Japan, Korea, and several other countries.

The figure shows that year-on-year growth rates can vary significantly among countries and among years or quarters. This variation results from the timing of large network construction projects in different countries - when they get started, how fast they ramp up, how long the project lasts, and what happens after they are finished. FTTH projects can be significant contributors to a country's optical cable demand, and often when FTTH projects are completed, demand can drop off.

In China, the accelerating growth in 2015 has resulted mainly from construction of LTE 4G mobile network infrastructure plus FTTH installations. The US market, which is the world's second largest after China, has shown year-over-year growth of at least 10% in seven of the last eight quarters. FTTx deployments, including the FTTH projects of AT&T and Google, have been key drivers of this growth, along with new regional and metro network construction. (The US is not shown on the chart, but it is the dominant contributor to the total for North America, which is shown. In the last five years, the amount of optical cable installed in the US has ranged from 82% to 89% of the North American total.)

What about a fibre shortage?
In previous articles, we have commented on concerns about a fibre shortage in late 2015 and extending into 2016. Most of the comments we have heard about fibre being in short supply have come from cable makers in China, plus a few in Europe. In the US, which has only three single-mode fibre factories, there have been no comments about fibre availability affecting cable makers.

So far, there we have not heard comments that the market has been constrained by fiber supply - that major network construction projects were severely delayed or cancelled because there was no fiber. Rather, the shortage seems to have caused some companies to find new suppliers or to step up imports from overseas suppliers.

This seems evident in the data showing fibre imports into China and the US. In China, the amount of fibre imported has been on a downward trend in recent years, as new preform and draw capacity has entered service. With the China's current surge in demand, however, it appears that the new capacity could not keep up with the 2015 growth. As a result, bare fibre imports have gone back up in 2015. 
The situation is not entirely this simple, as China's bare fibre exports also have been on an increasing trend. And bare fibre exports showed significant increases in Q2 and Q3 of 2015, when China's fibre imports also jumped up. This suggests that the increased imports are at least partly affected by the mix of cable makers supplying China's domestic cable market, and which of those cable makers have enough in-house or affiliated fibre capacity.

The US has fewer fibre factories. Only three are turning out single-mode fibre for telecom cable applications, compared with China, which has 26. But the US also has a complex mix of international trade and domestic supply relationships. The US optical cable market is smaller, currently estimated at 36 million fibre-km of single-mode fiber in cable, compared with 200 million fibre-km for China. Plus the three fibre factories in the US as a group have more than enough capacity to supply the entire country's single-mode fibre market. And bare fibre exports from the US have been staying at about the same level for several years, according to international trade data.

So the increase in the US's bare fibre imports is not the result of supply constraints. Rather, it is the result of the mix of fibre and cable makers, which ones have internal or affiliated fibre supply, and which ones have cable-making customers in export markets as well as domestic customers or domestic factories. As shown in the chart, the increased US imports of bare fibre are mainly from Japan and India. In the case of Japan, all three major Japanese fibre-producers - Fujikura, Furukawa, and Sumitomo - have affiliated subsidiaries in the US. Only one of them, Furukawa has domestic US fibre factories, under the OFS company name. The Fujikura and Sumitomo cable factories in the US are likely to import fibre.

The fibre imports from India include shipments from Corning's fibre factory in Chakan, Maharashtra, in the Pune district. In addition to the factory in Pune, Corning has fibre factories in the China, Korea, and the US, and the company supplies various US and international cable factories from all of them. As with the imports from Japan, the increase in imports from India, as reported in US dollars, does not necessarily reflect a fibre shortage so much as a change in the mix of fibre types and possible changes in the market share held by different cable suppliers in the US and other countries.

In general, as fibre supply becomes tighter in some markets, especially China, the amount of international fibre shipments, as reported in trade statistics, may show swings up or down in different countries. These swings will also reflect the role of different cable makers in their domestic markets, and which of them have an internal or domestic fibre-producing business unit. Overall, the duration and the severity of the tightness in fibre supply will depend largely on how much China's cable demand continues to increase in 2016.