Gadget Hungry China to Drive `Lifestyle' Metal Gains, PwC Says

  • Middle class's impact on copper demand significant now
  • China to continue to drive demand for nickel and zinc

China’s swelling middle class is poised to drive long-term demand gains for metals including copper, zinc and nickel as the world’s second-largest economy transitions to consumer-driven growth, according to PricewaterhouseCoopers Australia.

The urbanization of the world’s most populous nation, which moved about 300 million people to cities in the past 20 years, promises to herald an increased need for metals required to make every kind of consumer product from smartphones to refrigerators, PwC Australia’s Melbourne-based national mining leader Chris Dodd said in an interview.

“We’re heading towards the period in China for the lifestyle metals to really come to the fore,” Dodd said by phone. “If you currently have a mobile phone in your hand you are not going to tolerate a scenario where you don’t have one in the future. If you’ve ever put an air conditioner in your house, you are not going to live without one.”

While metals prices have tumbled this year as the Chinese economy expands at the slowest pace in two decades, copper and nickel are likely to be the first to emerge from the rout in commodities, according to T. Rowe Price Inc. Rising populations and growing wealth in emerging economies will be the primary driver of longer term demand, in particular for industrial metals, energy and fertilizers, BHP Billiton Ltd. said in February.

Middle Class

The impact of demand driven by middle class consumers “is significant right now,” in copper markets, Chile’s Vice Mining Minister Ignacio Moreno Fernandez said in a interview in Melbourne, on the sidelines of the International Mining and Resources Conference. Chile is the world’s top copper producing nation.

China’s consumption of copper per capita remains below Europe and the U.S., he said. “China still has the possibility to increase consumption in the future, though the increase won’t be as explosive as it was 20 years ago,” Fernandez said.

The Bloomberg Commodities Index touched the lowest since 1999 last week amid China’s cooling economy. China’s gross domestic product increased in the third quarter by the least in six years and October trade data released Sunday showed imports slid for the 12th month in a row.

‘Last Boom’

As China slows, there won’t be a demand catalyst to rival its impact on commodities markets, independent economist Saul Eslake told the conference in Melbourne. Countries poised to experience significant urbanization including Indonesia, the Philippines and Nigeria are smaller in population size than China, he said.

“The commodities boom that Australia has just experienced in the last 12 or so years is the last of its kind in human history unless unforeseen technological developments ordain otherwise,” said Eslake, a former chief Australia economist at Bank of America Merrill Lynch who’s studied the Australian economy for more than three decades.

Still, China’s urban population will probably increase by a further 170 million people in the next decade, while globally about 70 million people a year are entering the world’s middle class and boosting demand for materials, according to Rio Tinto Group.

Glinting Eye

Copper wire is used in appliances, including washing machines and refrigerators, while nickel is needed for phones, computers and vehicles. Minerals supplied by the biggest miners are required in everything from Apple Inc.’s iPhones to automobiles.

In the even longer term, the construction of power grids and water supplies in rural India will be a key source of new growth, Chile’s Fernandez said. “We strongly believe that the future demand in the copper market should be driven by Indian demand,” he said in the interview.

Producers are positioning to meet demand driven by consumers and also to swoop on distressed assets and companies amid cratering commodity prices, PwC’s Dodd said Monday, before addressing the Melbourne conference Tuesday, alongside executives from MMG Ltd. and Antofagasta Plc.

“I get the feeling that there’s a bit of a glint in the eye of some of the senior players in the industry who see this as their next opportunity,” Dodd said.

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