OPINION — Copper market benefits from China’s

The industrialization of China is likely to be the most significant economic development of the 1990s. To date, China’s manufacturing boom has had a far more positive impact on copper than on any other metal.

There are two main reasons for this development. One is that China lacks the copper mine capacity to support current consumption levels; the other is that copper consumption has been growing faster than that of the other nonferrous metals.

The fastest-growing economic sector has been light manufacturing, which is not a raw material-intensive sector (such as automobile manufacturing). Most of the growth in copper demand has come not from the products being produced, but rather from the factories being built to produce these products. All new factories need power cable to run their machines and building wire to light them.

The exact level of Chinese refined copper consumption is unclear. Consumption in 1992 was about 800,000 tonnes, representing a 150,000-tonne increase over 1991. During the next five years, growth is expected to average 7% per year. That would mean a 1997 consumption level exceeding 1.1 million tonnes. It is believed that China’s domestic mine production in 1992 was about 290,000 tonnes and, by 1997, it could be up to 400,000 tonnes. China’s current copper deposits are not good and, at present, it seems unlikely that there will be a major gain in mine output during the 1990s.

Chinese smelter production in 1992 was about 390,000 tonnes, with concentrate imports supporting about 25% of that output. Refined production was about 590,000 tonnes, based on 390,000 tonnes of domestic blister, 50,000 tonnes of imported blister and 150,000 tonnes of scrap, much of which was imported. With consumption of 800,000 tonnes, that would mean refined imports accounted for 210,000 tonnes. It is likely that more than that amount was imported but that not all of it was consumed in 1992.

Looking forward, China’s plan is to expand its smelter capacity to reduce imports of refined copper. However, considering the limited potential for expanding domestic mine output, this should entail major increases in concentrate imports.

China’s plan to base its imports primarily on concentrates, rather than on refined copper, emulates the strategy employed by Japan and Korea. In this way, the cost of imports is less, jobs and value added are created domestically and the country receives a free source of sulphur for its emerging chemical industry.

Plans have been drawn up for six smelter expansion projects which could more than double capacity to 830,000 tonnes per year by 1997. Some of the new capacity will be on-stream by 1995, but it is unlikely that all of the projects will be completed by 1997. However, if we assume that this planned capacity will be on-stream by 1997, a dramatic shift in the composition of China’s copper imports would be created.

Combined imports of concentrates, blister and refined copper could increase to 552,000 tonnes in 1997 from 360,000 tonnes in 1992. However, refined imports could fall to 72,000 tonnes in 1997 from about 290,000 tonnes in 1995, while concentrate imports could rise to 430,000 from 100,000 tonnes between 1992 and 1997. This would have a major impact on the world concentrate market.

Of course, in terms of the internatonal supply and demand balance, it does not matter whether China imports concentrates or refined metal. In either case, the industrialization of China will be a bullish development for the copper market.

— Robert Lesemann is with Resource Strategies. This article appeared in a recent issue of the American Copper Council’s “Copper Talk” publication.