Copper Winding Earth 105 Times Shows Deficit: Commodities

China, primed by government spending to boost growth, will need enough copper every month to circle the globe more than 100 times.

The nation required 4.2 million kilometers (2.6 million miles) of copper cables in December, the most in nine months, to satisfy demand for electric grids, housing, autos and exports. That’s enough to go around the 40,075-kilometer equator about 105 times. Manufacturing and exports are growing at the fastest pace in two years, while cars are selling like never before in China, the world’s most-populated country and responsible for about 40 percent of world copper consumption.

Copper use in China will jump 8 percent to a record 8.833 million metric tons this year, boosting global demand and creating a 6,000-ton product deficit versus a surplus of 216,000 tons in 2012, according to Goldman Sachs Group Inc. Prices in London probably will climb 15 percent to $9,000 a ton in six months, more than double the advance for all of last year, New York-based Goldman said in a Feb. 19 report.

“Copper is the preferred way to play China growth, and it should be very strong,” said John Stephenson, who helps manage C$2.7 billion ($2.7 billion) at First Asset Investment Management Inc. in Toronto. “The commodities that will do well are the ones that China doesn’t have a hammerlock on in terms of their ability to produce, and copper certainly would be that.”

Price Rally

Prices have slipped 1 percent on the London Metal Exchange this year after a 4.4 percent rally in 2012. The Standard & Poor’s GSCI gauge of 24 raw materials has advanced 1.4 percent in 2013, and the MSCI All-Country World Index of equities added 2.9 percent. Treasuries lost 0.4 percent, a Bank of America Corp. index shows.

China’s growth in the three months ending in June will accelerate to 8.25 percent, the fastest pace since 2011, after government stimulus measures helped pull the world’s second- largest economy out of a seven-quarter slowdown at the end of last year, according to a Bloomberg survey of economists. China is the biggest user of copper.

Manufacturing in China has expanded for four straight months, a Feb. 1 government report showed. January exports gained the most since April 2011, and passenger-vehicle sales surged 49 percent to a monthly record, data released Feb. 7 and 8 showed.

China Imports

The country needs to import copper because domestic production of 6.541 million tons will fall short of demand by 2.168 million tons, Barclays Plc said in a Feb. 15 report.

More than 21 million Chinese -- almost the population of Australia -- left their rural homes for jobs in cities in 2012, according to China’s National Bureau of Statistics. The migration creates greater demand for housing, new appliances, cars and electricity transmission lines, all requiring copper.

Vehicle sales in China, including trucks and buses, will probably accelerate this year and surpass 20 million for the first time on a rebound in economic growth and urbanization, according to estimates by the China Association of Automobile Manufacturers. The transportation industry accounts for about 11 percent of the country’s copper use, according to data from Bloomberg Industries.

China will rebuild 3 million homes for rural residents in 2013, the official Xinhua News Agency reported Feb. 10, citing the Ministry of Housing and Urban-Rural Development. New-home prices rose in December in the most Chinese cities in 20 months, according to a government report on Jan. 18.

‘Electric Grid’

“China is planning on urbanizing 100 million people over the coming decade, and the No. 1 usage for copper in China is the electric grid,” John Goldsmith, who help manage C$5.2 billion at Montrusco Bolton Investments Inc. in Toronto, said in a telephone interview. “That’s a boatload of copper they’re going to need.”

Accelerating inflation may prompt the government to reign in growth. The People’s Bank of China drained a record 910 billion yuan ($146 billion) from the financial system last week. The government told local authorities on Feb. 21 to “decisively” curb real-estate speculation and take steps to cool the property market after January prices rose the most in two years. Builders account for about 9.4 percent of Chinese copper demand, compared with 50 percent in the U.S., where about 400 pounds of the metal is used in the average home.

Stockpiles of the metal monitored by the Shanghai Futures Exchange have climbed 49 percent since the end of June, data from the exchange show.

Oyu Tolgoi

A 3.4 percent surge in copper output may overwhelm demand and keep prices in check, according to Barclays. Mines scheduled to open this year include Codelco’s Ministro Hales near Calama, Chile, and Rio Tinto Group’s (RIO) Oyu Tolgoi Mongolia’s South Gobi Desert. Production will jump the most since 2004 this year, creating a surplus of 56,000 tons, Barclays estimates. The London-based bank forecast prices will decline 0.3 percent on average in 2013, according to the Feb. 15 report.

Chile, the world’s biggest copper-producing nation, said Jan. 28 that domestic output will probably reach a record this year.

“I’m not convinced we’ll see a bull market in copper any time soon,” Jack Ablin, who helps oversee about $66 billion of assets as chief investment officer of BMO Private Bank in Chicago, said in a telephone interview. With the increase in China demand, “it’s a favorable environment, but the rising supplies are going to get in the way of that.”

Copper consumption is also poised to rise in the U.S., the world’s second-biggest user, and the outlook for U.S. housing will be an “important contributor” to demand growth, Goldman said in a Feb. 19 report.

U.S. Housing

Builders broke ground in January on the most U.S. single- family homes in more than four years, Commerce Department data showed Feb. 20. The U.S. will account for 9.7 percent of demand this year, while China will use 44 percent, according to Goldman.

The world’s mining companies have fallen short of forecasts by an average of 6.5 percent annually since 2006, data from the Lisbon-based International Copper Study Group show. Companies from Melbourne-based BHP Billiton Ltd. (BHP) to Phoenix-based Freeport-McMoran Copper & Gold Inc. (FCX) have contended with labor stoppages and aging mines. Refiners must process about 15 percent more ore than in 2000 to extract the same amount of metal because of declining grades, according to Macquarie Group Ltd.

Morgan Outlook

Rio Tinto, the world’s s largest mining company, said Feb. 14 its $6.6 billion Oyu Tolgoi copper mine won’t start until disagreements with the government are resolved. London-based Rio has twice rejected Mongolia’s demands in the past 18 months for a greater share of profits from the mine.

The outlook for new supply will have a “muted” effect on the market in the medium-term, in part because of the risk of project delays, Morgan Stanley said in a Jan. 24 note. The bank estimated prices will rise to $8,554 this year from $7,952 in 2012.

“The Chinese will continue to urbanize as they want to bring more of their population to the middle-class platform, and that means more infrastructure, and that in turn means more copper demand,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets. “The economic data in the U.S suggests that the economy continues to grow, and particularly in the housing market, and that is positive.”

To contact the reporter on this story: Joe Richter in New York at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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