CHART: China vs copper – much better than you think
It’s all about the base
China’s economic growth is on track to fall to a 24-year low in 2014 and is set to decelerate again next year.
Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.
Coupled with the fact that China consumes 45% of the world’s copper and you’d expect disaster for the red metal.
When you are fixated on rates of change (guilty as charged) it’s easy to lose sight of absolute numbers, though.
While China’s GDP growth is expected to slow to 7% in 2015, which is indeed the slowest pace since 1990, the country would be adding some $700 billion to gross domestic product (and that’s excluding Hong Kong).
That’s greater than the size of mainland China’s entire economy in 1994, when growth rates peaked at a stunning 30% year-on-year. $700 billion is also bigger than Switzerland’s economy and worth almost 2 South Africas and 4 New Zealands.
SEE ALSO: Turn a 200kt copper surplus into 1.6mt deficit in 3 easy slides
A new research note, reassuring titled Time to turn positive on base metals, by Caroline Baine, senior commodities economist at Capital Economics, features a graph that shows China’s copper consumption growth in relation to physical copper usage.
It highlights the fact that like GDP, copper consumption in the country is now coming from a much higher base and points out that a 9% increase in copper consumption in 2004 resulted in a 280,000 tonne increase in usage, while the 9% jump in 2013 represented nearly 800,000 tonnes of additional copper.
Even better, copper consumption growth is outpacing overall economic growth and according to the independent research house the latest data suggest that China’s apparent copper consumption will have grown by a robust 10% this year and demand indicators point to strengthening going into 2015.
The house view at Capital Economics for the copper price is one of the more bullish predictions: $7,200 a tonne ($3.26 a pound) at the end of next year compared to $6,300 a tonne ($2.85 a pound) today.
Source: Capital Economics
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5 Comments
Huw Roberts
Would have been very interesting to see the note “Time to turn negative on base metals”…but I doubt there was one.
rayban
How about adding the number of mines coming online in 2015 and 2016 . As well the probability of further slowing in all world economies of weight . It is completely wonderful to inform us , laudable to clear up misunderstandings , totally cool to create jobs and further economic stremgth . It is not so swift to push a bit on irrational exuberance or giddy excitement . Long term these increase commodity prices and cause instability .
I reasearch some , due diligence and what not . The number of mines currently losing money on .29 and .36 % ore might also be an add in there . These being open cast and deep ore mines , they may soon close . Copper and all metals is really a very complex issue deserving of respect . Before they say it . If debt is rising qtrly. ore grade is falling and it is all (xxx) and – and (numbers) getting larger it is they may close .
Europe slowing and the USA possibly having pent up demand suddenly wane may not help much either . Many the numbers say USA starting to overheat economically . To be continued ……..
golddigger69
I have been waiting for years for someone to write a story like this. It is always about growth rate and their dire plunge as China grows bigger. But moving from rate to absolute shows what everyone who knows something about growth: as the pie gets bigger the rate does not need to stay the same for there to be need for expansion of resources.
wally
In relation to the above headline, it might better read: China and Copper.
I found the following copy ( retrospectively ) useful in gaining insight as to how this may play out.
August: China’s copper and aluminium output hits record high in August – Refined copper production rose 7.4 per cent in August from July to
680,128 tonnes, beating the record 654,803 tonnes in November 2013,
National Bureau of Statistics data showed.
Output in August was 20.16 per cent higher than a year before. In the
first eight months, output rose 11.17 per cent from the same period last
year to 4.93 million tonnes.
More new capacity is expected to come onstream in the second half than the first half. Output should be rising,” Xu said.
source: http://www.scmp.com/business/commodities/article/1594212/chinas-copper-and-aluminium-output-hits-record-high-august
December: UPDATE 1-China refined copper output at record in Nov
Refined copper output reached 755,492 tonnes in
November, up from the previous record at 732,746 tonnes in October, data
from the National Bureau of Statistics showed on Tuesday.
A 100,000-tonne-a-year copper smelter
in China’s northeastern Liaoning province started production last month
after staying idle for about 5 years, the sources said.
http://www.reuters.com/article/2014/12/16/china-metals-output-idUSL3N0TZ2TG20141216
Refined copper production increased 11.5 percent on-year to 7.17 million tonnes in the first 11 months, the data showed.
source: http://www.reuters.com/article/2014/12/16/china-metals-output-idUSL3N0TZ2TG20141216
Merry Xmas to anyone that cares to have one!
Zulugroove
All we need is for evryone in China to buy a set of those lovely door knockers for the holiday season ..and copper will do just fine,thank you very much!