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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

BMO

next year. In light of this, China’s purchases

Radclyffe

Capital

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

said

Markets

the

analyst

Chinese

David

appetite

for

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-

been

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

and

the

bureaucrat

investors

have

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

FA L L 2 0 1 0

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61

11/27/2010 3:13:23 PM

Profile for Daniel Hellwig

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

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