Resource World Magazine

62 www.resourceworld.com j u n e / j u l y 2 0 1 4 e p i l o g u e D a v i d D u v a l W hen assessing global metals demand most people tend to look at con- sumption for industrial purposes (building construction/auto manufacturing etc.) as the main driver of prices. We some- times forget that Joe Average's purchase of household necessities such as dishwashers, dryers and electronic equipment – although seemingly small on an individual basis – also drives prices for key industrial commodities such as copper, aluminum, zinc and other metals. Years ago I recall one senior mining executive telling me that "if every family in China went out and bought a toaster tomorrow, the price of copper would double." He might have been right for all I know but whatever the veracity of that statement his point was well made. The World Economic Forum, a European think tank, cites the rapid rise in living standards all across Asia as the cause of "poverty disappearing everywhere you look." Most noteworthy in this regard is China where "more than 600 million people have been rescued from absolute poverty," according to the WEF. In addi- tion, it notes that "The inexorable growth of the middle classes in Asia will put enor- mous stress on global resources," including industrial commodities that most people in the West consider to be in endless supply. The International Monetary Fund reports that China has the "fastest grow- ing consumer market in the world," a fact that held true in 2011 through 2013. Both the Chinese government and the IMF are calling for more consumer-based growth which, in fact, has fallen behind actual GDP growth (along with household income) over the past decade. Interestingly enough, household sav- ings in China have been rising which may correlate with escalating demand for gold which is a storehouse of value and a long- standing cultural medium of exchange in China. Clearly, Chinese consumption is affecting all metal markets. Bloomberg reports that record spending by Chinese consumers on new refrigera- tors, cars and laptops is also boosting zinc demand, creating the biggest production shortfall for the metal in eight years. In fact, Morgan Stanley predicts that prices in London for zinc will rise more than any other industrial metal in 2015. Despite uncertainties in Chinese financial markets and sluggish factory growth, actual demand for key industrial commodities such as copper remains robust. According to an official of Pan Pacific Copper, Japan's biggest copper smelter, global demand for copper in 2014 is expected to grow by roughly 5% to 21.57 million tons from a year ago, while demand in China will rise by 6% to around 9.6 million tons. Analysts believe that some of that growth in copper demand is the result of state spending on China's power grid which grew by 13% to record levels in the first quarter. Adding to the more bullish tone in the copper market of late is the fact that production of household goods, automo- biles and electronics has been expanding at a 5-15% clip, analyst Joel Crane at Morgan Stanley told Reuters recently. "Inventory is low and we're in peak demand season. The key copper end-use sectors are growing at a reasonable clip," he said. Increased demand for copper glob- ally is also supported by the expansion of green technology, one example being hybrid vehicles which require 13-23 more kilograms of copper than conventional vehicles. Wind turbines require more than three tonnes of copper. Since copper is the highest rated ther- mal and electrical conductor among the engineering metals, power systems that utilize copper generate and transmit energy with maximum efficiency and with minimum environmental impacts. By using copper instead of other lower electrical energy-efficient metal conductors, less electricity needs to be generated to satisfy a given power demand. Freeport-McMoRan Copper and Gold, which operates the world's fifth largest copper mine in Indonesia, sees Chinese demand for copper growing for at least a decade or more. Freeport is a significant force in the marketplace on the production side and may in fact find itself contribut- ing to supply shortfalls and perhaps even higher prices for copper this year. The company halted copper concentrate exports from Indonesia in mid-January over a dispute with the Indonesian govern- ment on a new tax. Freeport and Newmont Mining have refused to pay an escalating export tax introduced on January 12, 2014 as part of a package of new mining rules aimed at forcing miners to build smelters and process raw materials in Indonesia. At the present time, Freeport's Grasberg Mine is producing at one-half capacity but has yet to reduce its manpower levels. Indonesia is the world's largest sup- plier of high-grade nickel ores. Earlier this year, it banned exports of unprocessed material, boosting nickel prices to their highest levels in years. The price of nickel is also reflecting the possibility of sanc- tions being imposed on Russia's Norilsk Nickel because of the situation in Ukraine. People who forget the influence of geo- politics on commodity prices do so at their peril. It would appear that 2014 could yield some positive surprises for base met- als although the sustainability of an uptick could be short-lived. n Growing Chinese consumer demand to drive metal markets

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