By Sohrab Darabshaw
According to a recent report from the Freedonia Group, worldwide demand for copper is expected to advance 4.7% every year to 37.2 million metric tons in 2019. It also says the Asia-Pacific region is expected to see the fastest annual gains, led by increased output in China and India.
Electrolytic refining of primary copper will be the primary method of production in these countries, but recycled scrap will account for a larger share of total refined copper output.
Construction Spending in India, US
Outside the AP region, the Freedonia report says advances in construction spending would also fuel copper demand in North America, particularly in the US, where early signs of building construction activity significantly increasing exist. This is followed by Western Europe which could see a "moderate increase" in copper demand since construction and manufacturing output there is expected to climb at a below average speed.
China accounts for about 40% of the world's copper consumption. If its per capita copper consumption is compared to India's, there's no contest. China beats its neighbor hands down. Last year, China piloted the global copper metal market, accounting for more than two-fifths of world demand. The Chinese hunger for copper was fueled by not only its massive construction activity, but also by its electrical, electronic, industrial machinery and motor vehicles sectors.
No Chinese Demand Revival
But with not much hope pinned on a Chinese revival in the short term, except maybe a government economic impetus, the world market is looking to India to pick up demand and be the new engine of copper consumption. Outside of construction, one sector that analysts predict will drive up copper demand is power. Higher investments in new power generation plants in India, as reported earlier by MetalMiner, are bound to hike demand.
A group of copper analysts feel that the process of electrifying rural India needs to be kick-started. India's economy needs to pick up in the second half of 2015 in order to end the year on a more healthier note than 2014. Copper price performance in the first quarter of the year has been, well, listless. This is reflected on the London Metal Exchange (LME) where the price of copper is hovering at an average $5,500 per mt.
Analysts are not positive on prices picking up in the second half, either, unless local factors increase copper demand. So the bets, for now, are on the Indian copper price ending the year at just below $6,000 per mt.
Can Indian Demand Meet Supply
India's copper demand was about 600,000 mt last year. If India's copper growth sustains just 4% going forward - this would be in tandem with the rest of the world's expected growth - it would still be nothing to crow about. What is needed is growth figures of 6% or more to reflect the trust placed in India by agencies such as Freedonia.
Pradeep Unni, head of trading for commodities and currencies at Richcomm Global Services in Dubai was quoted as saying prices should largely be range-bound between $5,700 and $6,700 a ton on the upside this year. With China likely to witness less than 7% growth, and India lagging behind, copper prices in 2015 could witness lackluster and range-bound price movement.
The dollar-rupee ratio is one more factor that affects Indian copper prices. Any weakness in the rupee helps stabilize local copper prices. On this front, there's some upside because the rupee has been quite low against the dollar. That coupled with the drop in Indian interest rates will keep the downside risk for local copper prices low compared to global risk.