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Copper Shortage Coming

China's Demand Grows as Global Supply Dwindles

Written by Brian Hicks
Posted March 5, 2013

Already responsible for the most significant use of copper in the world, China is looking to ramp things up even further with its usage of and demand for the metal in 2013. As a result, prices throughout the world are expected to rise, and a shortage of copper is not too far off in the future. 

According to Bloomberg, China will require enough copper each month this year to circle the world approximately 100 times in order to satisfy the needs for electric grids, cars, and more. Much of these imports would be unaffordable to the country if China had not been primed by government spending in order to spur growth, a factor that is having a relatively large impact on metal imports and exports.

China currently uses 40% of the world’s copper, much of which is used in industrial applications and is then exported out of the country. It’s expected that this year, use of copper in the country will rise to 8.833 million metric tons, according to Bloomberg.

As a result, the global demand for copper will rise to create a deficit of 6,000 tons, which will of course have a direct impact on pricing throughout the globe. In London, for example, prices are expected to climb by 15% just in 2013 alone, skyrocketing to $9,000 a ton within the next 6 or so months.

One way that analysts and financial experts have chosen to look at this comes down to the fact that it can be extremely difficult to control growth in China. Highly populated and quickly gaining ground as perhaps the largest and fastest growing economy in the world, China can sometimes seem as if nothing can stops it from truly becoming a monopoly on the rest of the globe. 

The fact is, though, that the country requires certain raw materials it simply cannot produce on its own, including copper. Because of this, copper prices set by other countries can be high enough to keep China in check to an extent, as it does not have a lock on this commodity the way it does others.

It’s not just exports from China that require the additional copper, however; much of it is needed simply in order to sustain the country’s population. According to Bloomberg, over 21 million Chinese left their rural homes in 2012 in order to assimilate to cities—think of this as an uprooting of a population the size of Australia’s.

As one might expect, this shift requires a massive uptick in housing creation, new appliances, vehicles, electrical lines, and more; all of which require a large amount of copper to produce. 

The country is planning to continue its urbanization efforts, striving to assimilate over 100 million people into urban environments over the course of the next decade. In order for this to happen, China is going to need a great deal of copper, not only driving down supply throughout the world rather significantly, but also causing prices to skyrocket.

The demand for copper is somewhat of a double-edged sword. On one hand, it allows countries such as the UK to keep China in check by setting higher prices than ever before on the metal, which can be seen as an effective way to avoid China from becoming a veritable monopoly on the global economy.

What this also means, however, is that supply throughout the world will continue to dwindle, perhaps resulting in issues down the road for countries that require copper to further their own urbanization efforts.

Either way, China is going to have a hard time keeping up with its growth from a financial perspective. Just last week, the People’s Bank of China sucked out 910 billion yuan, which is the equivalent of $146 billion, to slow growth and induce inflation. Immense growth such as this can, of course, be positive for a country, but it can also add a great deal of financial restraints if things get out of hand.

It’s no secret that China is going to have an interesting future in regards to the country’s needs for copper. Whether or not prices throughout the globe will continue to rise past 2013 is unclear, but it wouldn’t be a drastic stretch to assume that this may be the case.

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