Copper Market: The Growing Role of China and Emerging Markets

This is just an example of how the past hasn't been the future or how the present environment has been evolving.

Frank Holmes of US global funds notes of the changes in the seasonal patterns of copper prices due to the growing influences of China.

Here is Frank Holmes, (bold highlight mine)

``The 30-year pattern shows what used to be a rule of thumb when I first got into this business—buy in November and sell in March. This was because of seasonal stockpiling during winter months leading into major building and construction projects in the spring and summer months.

``In contrast, the 15-year pattern is dramatically different. This pattern shows copper prices rising from January through May and then trading pretty much sideways for the rest of the year, with modest peaks and valleys along the way. A similar pattern is drawn to represent the past five years.

``The reason for the trend shift is China.

``According to research from Dundee Wealth Economics, China’s copper consumption grew from about 1.8 million metric tons in 2000 to nearly 5 million metric tons in 2008. This pushed China’s share of global consumption from 13 percent in 2000 to 28.5 percent last year. In the first quarter of 2009, Dundee estimates, China accounted for 38 percent of the world’s copper usage.

``Demand for copper from the other BRIC countries (Brazil, Russia, India and China) has also increased, but none nearly on the same scale as China."

``For instance, Russia’s copper demand increased 300 percent from 2000 to 2008, but its overall share of global demand is still just 4 percent. India and Brazil both saw smaller consumption growth over the eight years, and in 2008 they accounted for 3 percent and 2 percent of global use, respectively."

``Copper isn’t the only metal where China is king. China also lead global consumption growth for aluminum, zinc, lead and nickel from 2000 to 2008."

In sum, China's role in the commodities market have been gaining significant weight in terms of overall global demand, and will most likely increase its role.

To add, we should also expect other Emerging Markets to equally gain market share. At present the BRIC, according to the estimates above, accounts for 49% of the copper market demand.

And as we pointed in Decoupling in Oil Markets: The Centre of Gravity in Energy Markets Has Shifted To Emerging Markets, BP's Tony Hayward observed that the ``centre of gravity in the energy market tilted sharply and permanently towards the emerging nations of the world."

Copper prices has so far reflected the activities in the Baltic Dry Index and the Shanghai Index (albeit the latter continues to zoom).