Emerging Markets Drive Copper Rally

Source: Copper Investing News, Leia Michele-Toovey (3/10/11)

"Analysts more bullish on copper than any other base metal."

There's a fundamental shift underlying copper's demand dynamics. The U.S. is losing ground in terms of copper demand, as emerging markets' demand skyrockets.

Historically, U.S. consumers have driven global demand. While still true, by 2017, Chinese consumers are expected to overtake the U.S. consumer as the main driver of global growth. This shift, however, is being observed in emerging markets the world over. These nations vary according to which analysts you ask but generally include the BRIC and Eastern European countries, Middle East and South America.

Not long ago, many believed that without a growing U.S. economy, the entire global economy would stagnate. Copper's recovery from the 2008 recession elicited how strong an influence these emerging markets have on the commodities sector. Many analysts called copper's rebound a "China-only story," because, while the U.S. was grappling with policy adjustments to boost the ailing domestic economy, China embarked on an aggressive stockpiling program. Its copper purchases, coupled with the moth- balled mining operations, sent the copper market into a supply deficit and copper prices to record highs.

About 56% of copper is currently consumed in emerging markets, according to Walter de Wet, head of commodity research for Standard Bank-Corporate and Investment Banking. Strong demand in emerging markets and particularly China is driving pricing. This is not a new trend. In fact, growing emerging market demand was a story maker long before the recession. According to HSBC analysts, between the years 2000–2004, the compound annual growth in North America's copper consumption fell by 3%, in Western Europe by 1.8% and 2% in Japan. In contrast, demand from other Asian countries increased by 8.6% each year. Demand from China grew a staggering 15%.

Arguably, analysts are most consistent in their bullish view for copper than for any other base metal.

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