largest supplier’s copper exports 25% by
has knowingly been stockpiling the metal for
itself. Total foreign mining investment stood
quite some time. He believes that China’s rapid
at $13 bn, 100 times the amount invested in
buying was only “an attempt to take advantage
2005 and constituting one third of all mining
of cheap prices and stock up on commodities
mergers and acquisition activity worldwide.
for future growth.”
Deals like these establish new import sources and secure China’s supply for the long haul.
“In fact, the country is likely facing an oversupply situation given record high
These strategies may not be enough in any
copper imports in February as well as
case; J.P. Morgan estimates say that demand
industrial production growth slowing to its
will outstrip supply by 180,000 tonnes, largely
lowest level since 2001 in the ﬁ rst two months
due to Chinese purchases. This same report
of the year,” Crane said.
has the deﬁcit swelling to 482,000 tonnes
next year. In light of this, China’s purchases
of the copper may be attributable to a shift in
copper is likely to slow now that copper
the country’s overall investment perspective.
prices are higher. “Prices have recovered to
As currencies, especially the U.S. Dollar,
current levels quicker than anticipated and,
become less assured investments, China has
on balance, shorter term prices have the
moved into investments with a more practical function. John Reade, metals chief strategist at UBS, said the country may be making a tactical decision to stockpile metal as an alternative to foreign bonds. “We’re very surprised by
China is buying much more copper than it will need this year...
Chinese demand. China is buying much more copper than it will need this year. If this is
potential to retrace some of the recent gains
strategic, there may be no effective limit on the
if sentiment weakens or inventories begin to
purchases as China’s pockets are deep.”
build again,” Radclyffe said.
Prices for copper are reaching record
These conﬂicting viewpoints bring up an
highs on this news, but investors who are
interesting series of questions: has China really
hopeful this signiﬁes an uptick in demand
had the opportunity to buy enough inventories
and is an early indicator of a global economic
to signiﬁcantly alter its future demand? Could
recovery should take caution – China and its
this simply be an investment diversiﬁcation
state run corporations are big buyers and they
strategy for its massive national reserve fund?
like to hoard for the long-term.
These are the keys to copper’s price shifts over
China’s State Reserve Bureau made a pivotal decision last year to stockpile copper,
the coming months. It is important to remember that the short-
term price climate does not reﬂect the macro-
building up an impressive inventory for quite
dynamics of the international copper market.
some time. China kept on buying and hoarding
The global copper economy, despite recession
copper, iron ore, zinc and crude oil even as
and possible stockpiling, will continue to grow.
commodity price collapsed in the ﬁ nancial
Innovation and growth will spark the need for
crash two years ago because it was, and still is,
sustained development, both in China and in
focused on supply for years to come.
other countries, where copper will be the key
As in all investment situations, opposite
resource. Without substantial supply increases,
opinions are widespread on these mixed
fundamental demand increases in rebounding
signals. Analyst Joel Crane of Deutsche Bank
and emerging economies will lead to higher
doesn’t believe that China’s sudden appetite
prices and deeper shortages, a direct threat to
for copper represents a rebound in industrial
the Chinese machine that created this situation
consumption, especially since the country
in the ﬁrst place. iBR
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I N T E R N AT I O N A L B U S I N E S S R E V I E W
11/27/2010 3:13:23 PM
Fall edition of the IBR magazine at the Wharton School.