Primary Consumers of Copper in Developing Countries
The demand for minerals, especially copper, has grown as big developing nations have joined the world market.
During the past sixteen years, copper supply has failed to utterly satisfy the demand due to its limited availability and the rising demand of developing countries.
A large portion of emerging Asia is moving away from rural to urban economies that are relied upon manufacturing industries, which demand more and more raw materials like red metal.
Asian countries, including Indonesia, Malaysia, the Philippines, and Vietnam, are all striving to develop their economies while China’s economy is still developing but at a decreased pace.
Whereas a number of such countries have encountered recent geopolitical difficulties, they have all made significant strides since the late 1990s. Among them particularly, Indonesia and Vietnam seem to have significant possibilities for industrial expansion.
By 2025, a mean annual growth rate of 4.5 percent is predicted for the manufacturing sector worldwide.
Therefore, in developing nations, the amount of copper used through the development and growth of infrastructural facilities will be considerably greater.
Urban regions in developing nations are anticipated to grow rapidly, attracting 96 percent of the extra 1.4 billion residents by 2030. The consumption of water, meals, shelter, heating, fuel, clothes, and consumer products will rise at an incredible pace as a result of the total rising world population, particularly because of an explosive urban population as they use far more meals, fuel, and major appliances than rural ones.
As nations undergo a phase of industrial growth and modernization, the International Monetary Fund (IMF) estimated that metal consumption normally rises along with people’s earnings till before real GDP per capita hits approximately $15,000–$20,000.
Several nations fall just under the IMF’s $15,000 benchmark, including Indonesia, Philippines, India, and Pakistan, with their GDP per capita being $11,812, $8,908, $6,700, and $4,690, respectively.
These four countries (together with those 113 of the 180 nations identified under the IMF’s $15,000 limit) will possibly keep on substantially contributing to worldwide copper consumption for a while in the future because they have still a long way ahead of the level in which future gains in GDP per capita can not raise copper demand for each individual anymore.
By 2035, according to an estimate by Roskill, the world copper use would surpass 43 million tonnes in light of the growing urbanization, GDP and population development, and rising electricity use. To fathom out the greatness of that figure, just think of the global copper production by year as 20, 21, and 22 million tonnes of copper were produced in 2020, 2021, and 2022.
One of the other main drivers of copper demand is the continuous transition to EVs, which include e-bikes, delivery vans, train services, automobiles, and trucks. The amount of copper used by EVs is almost four times that of conventional internal combustion engines.
China, the primary copper consumer for two decades
As the driving craft of economic growth, copper is intricately interwoven with China’s economic development since the country consumes 50% percent of the global copper demand almost every year.
If China’s GDP improves, the demand for copper will experience a huge gain. Therefore with any changes in the stability of the copper market, the entire worldwide market would be influenced.
Copper demand has soared considerably since 2002 as a result of China’s aggressive growth of its electrical infrastructure and the advent of EVs.
More than 178 million consumers migrated to urban areas in China from 2002 to 2012. According to BHP, the amount of copper demand in China rose by a ratio of 2–3 fold as far as the comparison of rural and urban regions is concerned.
In China, KPMG anticipated that up until 2030, 15 million users would migrate to metropolitan areas annually.
But what has been so tangible since last year was that after experiencing an industrial market boom, China’s economic development has somewhat slowed down.
In 2022, the copper market was impacted by the slowing construction industry, credit constriction, the issues of major construction corporations, notably Evergrande, and an energy crisis in China.
According to CRU statistics, machinery, conditioning systems, refrigerators, and other household appliances comprised 42% of China’s this year’s copper consumption by industry, while property constructions, power, and energy as well as transportation account for 22%, 22%, and 8%, respectively.
Besides, an aging population is a problem in China. Because of this, there may be less motive to create jobs as the economy is transitioning to a more developed stage.
On the other side of the world, due to the developing industries and the expansion of populations, Sub-Saharan Africa and India are going through a quick growth period.
Yes, China has experienced unprecedented development over the past ten years, akin to the post-war economic boom. But, this country has reached a growth stage in which the consumption of energy-intensive goods is slowed down.
After all, the growing trend in both GDP and energy consumption can be stalled through worldwide cooperation on energy efficiency. Be that as it may, copper still plays an indispensable role in this effort to increase energy efficiency.
Therefore, long-term substantial global copper demand forecast backed up by transition to green energy ranging anything from charging infrastructures to solar panels could perhaps counterbalance that pessimistic short-term prediction.
According to information from the consulting firm CRU Group, global demand for copper in the transition to a green energy economy is predicted to increase five-fold in the ten years prior to 2030.
That is why a strong positive sentiment is expected to dominate the copper market in 2023, as China might undergo a post-pandemic economic recovery.
India, the new evolving primary copper consumer
The copper industry in India currently accounts for around 3 percent of the world copper market, compared to just one state-owned sector a decade earlier.
India has taken a spot among the top producer countries, but it is also a major copper consumer, along with China, Japan, South Korea, and Germany; thus, a decline in copper prices can be beneficial for India, just like China. Therefore fluctuating prices on the LME have a significant impact on the trade of red metal in India.
The electricity and telecommunication industries often account for the majority of India’s copper demand. India’s top copper consumption section includes the industries of construction, technology, transportation, and home appliances. Dropping copper pricing will be so favorable to these industries.
In contrast to other copper markets, notably China, whose copper demand in 2022 was slowed down, India is said to have one of the highest paces of growth in the world despite a plethora of macroeconomic headwinds.
India’s economy, which is consisted of the industrial, construction, and real estate sectors, has boomed, originating from a combination of factors, including the boosted post-pandemic demand, higher incomes, and some government programs that have stimulated purchasing power.
According to a report released by The World Bureau of Metal Statistics, India’s use of refined copper throughout the period between January and August 2022 increased by 45 percent in comparison to 2021, approaching 435,466 tonnes and exceeding the worldwide growth of 4 percent, while China’s growth was 5% throughout the same time span.
The demand for copper has returned to its pre-COVID amounts. A significant pipeline of sustainable power and infrastructure developments, a rebound in property demand, digitalization, a trend towards e-mobility (especially metro electrification), and other factors all contributed to the witnessed healthy national development progression.
India’s surge over that period ended up in a record-high copper consumption in 2022, indicating the resilience of the nation’s economic recovery after COVID.
According to Wood Mackenzie analysts, India’s substantial copper demand was supported by the country’s booming end-use sector, which was fuelled by rapid urbanization, industrialization, and government incentive programs.
Investments were drawn by the state’s production-related stimulus program for white goods, whereby it encouraged the production of copper tubes for air conditioners.
In 2022, Wood Mackenzie anticipated that India’s refined copper usage would rise by around 15% from the previous year to roughly reach 620,000 tonnes, with an annual growth average of over 12% between 2022 and 2027.
This is while, in a broader sense, it is anticipated that global copper consumption will rise by a mean of 2.5% annually between 2022 and 2027.
The industrial and services industries’ growth drove India’s GDP to 13.5% growth in the 2nd quarter of 2022, its strongest rate in a year.
In October 2022, the nation’s industrial activity, which had been steadily increasing since July 2021, expedited as businesses hired employees at the quickest rate of almost three years.
According to government figures, consumer expenditures even grew that same year, nearly doubling from 12.3 percent in Q1 to more than 26% in Q2.
Consequently, a post-COVID development was observed in the majority of consumer-driven industries.
Since the pandemic, there has been a surge in household appliance sales, which is congruent with middle-class incomes increasing, and it is anticipated that through the upcoming years, their demand will rise dramatically.
According to Wood Mackenzie specialists, import taxes on copper fabricated goods hugely benefited local semis manufacturing, which utilizes refined copper.
The market was stimulated to resume contracts and operations by lower copper prices, which had fallen significantly from their record high in March 2022.
Meanwhile, the Indian refined copper market did not experience any deficit in supply sources owing to the increased local copper production in 2022 and a boom in importations from Japan, which has made a free-trade deal with India.
As per the Federation of Indian Mineral Industries, India’s primary copper refined output will increase from about 1,000,000 tons in 2022 to 1.6 million tons in the coming years.
Africa, a continent with great potential to consume copper
As one of the other primary copper consumers, Africa is anticipated to be the main driver of worldwide growth over the upcoming years, as other regions are suffering from population decline.
According to Brookings’ Africa Growth Initiative in 2019, 20 emerging countries in Africa will have mean annual growth rates of 5 percent or greater during the coming five years, outpacing the 3.6% pace of the globe’s fastest-growing economies.
As per the Centre for International Policy, by 2035, Africa’s workforce population will outnumber the remainder of all different parts of the globe together, and by 2050, one in every four people in the world will be African. By 2100, 40 percent of people on the planet will be citizens of African nations.
In a nutshell, urbanization is a historical force that has constantly impacted the market for at least the past 55 years and will continue to do so in the years ahead based on conventional trends.
Yet, a strong economy, on the other hand, can hasten migration too. Anyway, India, Sub-Saharan Africa, and China each possess the capacity to contribute to this copper consumption momentum, given their respective populations’ numbers.
So, because of its serious influence on commodities, urbanization is thought to exert a substantial effect on copper consumption.
Finally, the latest Fitch rating has anticipated that, like in 2022, the world’s copper demand will increase by about 2 percent in 2023, whereas copper mine production will increase by about 4%.
But the reality is in spite of predictions regarding the supply and demand of copper in 2023, the market had actually started the year with depleted worldwide inventories, which is shocking since 2000.
The spike in demand for copper will be reduced, though, if the US economy slips into a recession, which can be resulted in a drop in copper prices.
Armed with the answer to the question of what are the major copper consumption countries, think of the following problem carefully.
What would be your solution if you require more than 50 million tonnes of the red metal in the upcoming years but you had very limited supply sources?
It comes as no surprise if one tries to cope with this challenge by trying to manipulate the market as much as possible in order to convince anyone that there is a massive surplus rather than a major deficit.
And how would you go about doing it? Just consider how the Chinese controlled the copper market in previous years. To convince the world that there was still enough copper available, they brought as many analysts as they could to China in March 2015.
This has happened repeatedly, and 2022 was not an exception. Each year, the so-called “analysts” forecast a surplus, but what actually occurs? Supply deficits one after the other.
Who would benefit the most from this bearish sentiment descending on the market? What about the drop in copper prices? A savvy investor must be well informed of such market intricacies.
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