China Copper Con

Richard (Rick) Mills

Ahead of the Herd

Page 1 of 4

 

As a general rule, the most successful man in life is the man who has the best information

 

If you needed upwards of 50ml tonnes of copper over the next 5 years, and had very little production of your own, what would you do?

 

I'm thinking you'd manipulate the market like crazy trying to get everyone to believe there’s a huge surplus instead of a major deficit.

 

How would you do it? Well, we can look at the last time the Chinese manipulated the copper market - they invited every analyst they could find and invited them to China. Showed them all a few warehouses stacked with copper to the roof. Why there was so much copper the ground was compacting said one guy, another said the stacks were falling over like dominos. The world bought the surplus story, swallowed it hook line and sinker. Headlines screamed ‘China Has Enough Copper!

 

Of course it wasn’t true, China needed copper, what they had (2ml tonnes), was tied up in financing deals and at any one time there’s at least one million tonnes in transport or somewhere in the process that’s tied up, already spoken for, and not available.

 

And the world gets conned, every year 'experts' predict a surplus, instead what happens? Deficit after supply deficit.

 

Let’s expose the con job.

 

Copper Consumption

 

China is going to grow at over 7% this year, that’s compounded on top of the 7.3% it grew in 2014 and the year before etc. China is also spending huge amounts of money on infrastructure, especially their power grid.

 

India, to become competitive, needs to modernize its power grid, so too does Indonesia, they have to build all those smelters for in-country benefaction of ore.

 

Africa has - by 2050 every 4th person in the world is going to be an African - eight countries on that continent that have better growth rates than China and India.

 

Per capita consumption of copper in the United States was 10 kilograms per person in 1965, the same as in 1995. In Japan, per capita consumption increased from 6 kilograms per person to 11 kilograms per person over the same time period. Copper consumption in Korea in 1965 was less than 1000 tons. By 1995, Korea's consumption of copper had reached 637,000 tons, or more than 14 kilograms per person.

 

In China, even after years of economic growth, per capita copper usage is about 5.4 kg. As China’s populace urbanizes, builds up its infrastructure and becomes more of a consuming society, there’s no reason to suspect Chinese copper consumption won’t approach or even surpass U.S., Japanese and South Korean levels. There’s 1.3 billion people in China, even a slight increase in Chinese consumption will translate into enormous demand growth.

 

India, with its 1.2 billion people, is presently using 0.4 kg of copper per person. The country is modernizing and needs to invest heavily in electrical power infrastructure. According to the International Energy Agency (IEA), India's power production will need to rise by up to 20 percent annually to keep pace with its economic and population growth. Just meeting the required power target would double India's annual copper consumption.

 

India's new government, led by Narendra Modi, is focusing on Asian partners China and Japan for enhancing investments in infrastructure and manufacturing. The growth model pursued by China and Japan – export oriented manufacturing, heavy infrastructure building and urbanization - has become India’s blueprint for pushing growth up to and beyond the 7 percent mark.

 

Population Growth

 

At this moment there are slightly over 7 billion people living on this planet, an urbanization rate of 53 percent means there are roughly 3.71 billion urbanites in the world today. It has been estimated that by the year 2050 our global population will reach 10 billion people. If our global population does indeed reach 10 billion people, and if Birch and Wachter’s expected urbanization rate of 70 percent is achieved, seven billion people, or almost the equal of today’s current world population will be considered urban.

 

Could we hit the ten billion people mark? Could 70 percent of us be living in cities by 2050? The answer is likely yes. Developing countries are responsible for 90 per cent of current population growth – these are on average very young people with many years of fertility/reproduction left to them. By the year 2025, in just 10 short years, 84 per cent of the world’s people will live in developing regions.

 

According to the World Health Organization (WHO) “Almost all urban population growth in the next 30 years will occur in cities of developing countries. Between 1995 and 2005, the urban population of developing countries grew by an average of 1.2 million people per week, or around 165 000 people every day. By the middle of the 21st century, it is estimated that the urban population of these counties will more than double, increasing from 2.5 billion in 2009 to almost 5.2 billion in 2050.”

 

The developing world’s urban centers are expected to burgeon, drawing 96 percent of the additional 1.4 billion people by 2030. Due to the overall growing global population - but especially an exploding urban population (urban populations consume much more food, energy, and durable goods than rural populations) - demand for water, food, housing, heat, energy, clothing, and consumer goods is going to increase at an astounding rate.

 

According to the International Monetary Fund (IMF) the consumption of metals typically grows together with income until real GDP per capita reaches about $15,000–$20,000 per capita (2005 int$) as countries go through a period of industrialization and infrastructure construction.

 

A few country’s stand out as well below the IMF’s $15,000.00:

  • China – 9,233
  • Indonesia – 4,956
  • Philippines – 4,410
  • India – 3,876 Pakistan – 2,891
  • Pakistan – 2,891

Since they are still a considerable distance from the point where further increases in GDP per capita no longer increase copper consumption per person, China, Indonesia, the Philippines, India and Pakistan (and the other 113 out of 180 countries listed below the IMF’s 15,000 Int$ cutoff) are likely to continue to add significantly to global demand for copper for some time to come.

 

http://aheadoftheherd.com/Newsletter/2013/Copper-Catch-Up_files/image006.jpg

 

Tomorrow’s Copper Demand

 

According to the Minerals Education Coalition every American born will need 978 pounds of copper over their lifetime.

 

http://aheadoftheherd.com/Newsletter/2013/Copper-Catch-Up_files/image008.jpg

 

We can see in the above Wood MacKenzie, Macquarie Research graph, from an August 2013 report, a projected refined shortage in 2018. The surplus forecast between now and then is diminutive in relation to the sheer size of the copper market and copper production often falls short of forecasts due to accidents, strikes, ore degradation or power shortages. Disruptions in the copper market averaged 900,000 tonnes of copper supply per year between 2004 and 2012.

 

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