China’s investment in smart grids to benefit copper, aluminum

China plans to increase investment in its power sector by 88% under its current five year plan (2011-2015) and a significant amount of that will go towards smart grid technology, London-based Barclays analyst Gayle Berry writes in a research note.

Smart grids use information to manage supply and consumption and improve overall energy efficiency, Berry says, and can adjust electrical loads to help avert situations like blackouts and cope with unpredictable energy usage and supply.

“These [smart grid] networks often contain more copper, in some cases using 4.8 kg of copper per square meter compared with 2.8 kg copper per square meter for a normal building due to the need for things like flow meters, sensors, controls and intelligent energy meters,” Berry explains. “The investment will also include the build out of ultra-high voltage transmission to connect grids over vast distances, the cables for which are aluminum-intensive using around 1.7 tonnes per km.”

The power sector in China makes up about 40% of Chinese copper consumption and about 16% of its consumption of aluminum, Berry adds.

Of the roughly US$250 billion the Chinese State Grid expects to invest in power between 2011 and 2015, about US$45 billion will be directed into smart grid technology, he argues, and the lion’s share of the spending on smart grids—and therefore demand growth for the raw materials used in the smart grids—will take place this year and next year.

Citing a report by consulting and marketing firm CBI China, Berry points out that the country’s investment in smart grids last year did not reach the 51.8 billion renminbi (US$8.2 billion) allocated to it, and that consequently “there could be a further ramping up of spending over the coming years as investment aims are caught up.”

He also points out that economists at Barclays believe that China’s commercial banks have recently boosted lending to the power industry.  

“Overall, while areas of consumption such as white goods and private residential construction have been soft this year so far, we believe that copper and aluminum consumption in the power sector … will prove to be a source of demand strength.”