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.

China's economy has been growing by an annual average of 9.28% since 2000. India'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.

Published on http://DollarDaze.org - Nov 28, 2006.

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© 2006 DollarDaze

ABOUT THE AUTHOR

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices. Mike can be emailed at mikehewitt@hotmail.com.

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Posted in Current Events, Metals & Mining, Mike Hewitt