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China and Copper: A Love Affair Destined to Continue?
Pinnacle Digest writes: Since the US housing bubble, China has assumed the role of world's largest consumer of copper. With China's economy continues to contract, quarter after quarter, year after year, some are beginning to question if China will remain hungry for copper. Copper bears have turned sour on China and global demand for copper. Let’s find out if its warranted.
Mills outlines a few key reasons Copper Bears have cited in recent weeks:
- The leading concern is about weak global growth.
- Investors are worried about China’s exports slowing and its implications for industrial metal demand.
- This followed by the fact China is 'thought' to have high inventory levels of copper.
- China’s surplus capacity and an extraordinarily tight cash position have also been cited.
The Beijing Antaike Information Development Co. has reported that copper consumption is expected to expand at the slowest rate since 1997. With that said, demand is still expanding.
In September, the ICSG or International Copper Study Group projected that global refined copper demand in 2011 would exceed refined copper production by about 200,000 tons, continuing the production deficit experienced in 2010. This is a very bullish fact for copper and copper producers.
Adding to the bullish sentiment supporting higher copper prices is that the World Bureau of Metal Statistics reported that from January to June 2012 worldwide copper demand surpassed production by 129,000 tons.
According to Beijing Antaike, the state run nonferrous metals consultancy, Chinese copper consumption was up 7.8 percent in 2011 to 7.33 mt, is expected to grow 5.9 percent to 7.76 mt in 2012 and to reach 10 mt per year by 2020.
Currently there is an estimated two million metric tons of copper in China’s warehouses.
Mills quotes Andrew Keen, Head of Metals and Mining Equity Research for Europe, the Middle East and Africa with HSBC, who stated, “That has to be put in context that over the next 5 years, China will probably consume 50 million tons of copper. So there is a major strategic shortfall in the copper market from a Chinese perspective and those warehouses are really part of that longer-term solution…We don’t think it’s a big problem for the copper market going forward.”
To read the entire article from CNBC where this quote was derived click here
Adding to further demand for Copper is China's powerful economic planning body, The National Development and Reform Commission (NDRC), which recently announced approvals for 60 infrastructure projects worth more than $150 billion.
With all the doubt surrounding China's economic expansion and what impact that may have on copper demand, our team believes any doubt in continued robust copper demand to be overdone. The fact is that demand for copper is increasing globally and future demand for copper looks exceptionally bright. Mills discusses other aspects to consider when evaluating the supply market of copper and any base metal for that matter.