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A recent report
by Credit Suisse speculates that copper could spike to that US$12,000/tonne
in 2007 due to a shift away from the importance of metal demand of the United States towards emerging economies such
as China and India.
ChinaIndia's economy could grow at
8-10% per annum over the next five years.
The importance
of the US
as an engine for metals consumption is declining rapidly - yet investors
still seem fixated on US economic data. Since 1998, US copper consumption as
a percentage of global demand has declined from 21% to 13% in 2006.
Over this same
time frame, China's
consumption has more than doubled from 10% to 22%. Expect China's
appetite for copper and other raw materials to continue. Over the next five
years, China will spend more on underground and overland rail networks in the
next five years than the rest of the world has spent in the last 20 years!
(Credit Suisse, Brave New World II, Nov 2006)
China currently
spends US$125 billion per year on infrastructure. Of that, nearly US$70
billion is allocated to the railway system with the balance going towards the
improvement of roads, airports and seaports. A typical
diesel-electric railroad locomotive uses about 11,000 pounds of
copper.
Motor vehicles,
once cited as a luxury for individuals in China, have become standard
consumer products for growing numbers of families. Projections for number of
vehicles purchased annually in China are ten million units by
2010. Some estimates place China
ahead of the US
as the largest car market by 2020. Today's average
automobile contains between 50 to 60 pounds of copper.
Russia has just
announced a major investment spending programme to reinvigorate its
electricity industry. In Europe, electricity
generation is likely to require an additional 1 million
tonnes of copper over the next ten years.
India currently
represents only 3% of global metal demand but Credit Suisse research predicts
a 1% increase over the next five years from the country's US$350 billion
infrastructure programme gathers pace.
The Indian
government intends to spend US$5 billion on the construction of 10,000 km of freight
railway lines by 2010, according to the Indian Railways budget. It has also
embarked on an ambitious plan to add about 100,000 megawatts of electricity
to its national grid by investing US$175 billion by 2012.
US Housing
One of the major
concerns with the current copper market is the softening of the US
housing market which consumes a quarter of the US copper demand. The average
2,100 sq.ft. single-family
home uses 439 pounds of copper, most of which
is for wiring and plumbing.
If US housing
starts were to fall by one million homes (about 50%) the reduction in US
demand would be just under 200,000 tonnes of copper.
This translates to an 8% reduction in US demand and a 1.25% reduction
in global demand.
Copper Metal Stocks for
2007
The consensus
for the total potential copper output increase for 2007 is 1,550,000 tonnes. Credit
Suisse predicts 642,000 tonnes of this to be delayed or postponed due to a
variety of issues associated with starting new mines or expanding existing
ones.
Of the 908,000
tonnes remaining, labour disputes and smelter cut-backs will further reduce
the amount by another 225,000 tonnes. 400,000 tonnes is estimated be consumed
in the restocking of strategic copper reserves, particularly those of China which
released significant amounts of copper in 2006 to supply its internal demand.
Global growth projections in copper consumption amount to an additional
535,000 tonnes of copper for 2007 compared with 2006.
This leaves us
with a projected 2007 copper deficit of 252,000 tonnes compared to that of
2006 to be adjusted by the US
housing figure.
Mike Hewitt
Editor
DollarDaze.org
Mike Hewitt
is the editor of www.DollarDaze.org, a website pertaining to
commentary on the instability of the global fiat monetary system and
investment strategies on mining companies.
Disclaimer:
The opinions expressed above are not
intended to be taken as investment advice. It is to be taken as opinion only
and I encourage you to complete your own due diligence when making an
investment decision.
©
2007 DollarDaze
Information contained herein is obtained from sources believed to be
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The information herein may become outdated and there is no obligation to
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