New Copper Technologies

From Goehring & Rozencwajg

Countless analysts have warned for years that China is over-consuming copper, but we disagree. These analysts often model annual copper demand as a function of real GDP, which we believe is a mistake. Unlike oil, which economies consume, copper is “installed.” Like any capital good, “installed copper” will last decades. Instead of looking at annual copper consumption (a flow, for those accountants among you), we prefer to analyze an economy’s total installed copper base, net of a depreciation allowance (a stock). By studying the relationship between its cumulative installed copper base and real GDP, we concluded that China is exactly where it should be for an economy of its size. Sporting a real per capita GDP of $12,500, China has approximately 260 pounds of installed copper for every man, woman, and child. As you can see from the chart below, China’s installed copper base is very much in line with other countries at similar levels of economic development.