A wise colleague once told me the first time you hear something, it’s a data point. The second time you hear it, it’s a line and the third time you hear it, it’s a trend. Said differently, the demand for the world’s precious raw materials is going to increase and so too will the prices.

Though we stand by our 2008 metals predictions (including copper) – the fact remains the underlying data may be pointing to a very different financial picture long term. Consider the following:

  • Tata Motors just unveiled their $2500 car for the Indian (and other) markets
  • Examining per capita “consumption rates” as recently published in the The New York Times by noted professor and author Jared Diamond, “The estimated one billion people who live in developed countries have a relative per capita consumption rate of 32. Most of the world’s other 5.5 billion people constitute the developing world, with relative per capita consumption rates below 32, mostly down toward 1.” But, “China’s catching up alone would roughly double world consumption rates. Oil consumption would increase by 106 percent, for instance, and world metal consumption by 94 percent.” And we haven’t even talked about India or any other developing country.
  • According to a March 2007 article quoting Sanford C. Bernstein, an investment management firm, a hybrid car, “costs US$4,500 to $6,000 more to build than a conventional vehicle.” Some of this cost is due to the added metal content for a hybrid vs a regular car. For example, there is more copper used because of the electrical motor and the larger the motor, the more copper required. In addition, more nickel is also used in hybrids than in conventional cars. And, according to this same article, the automotive industry accounts for 5% of global copper usage.

And the data goes on and on…though the metal content of cars has historically been dropping as a % of the overall content of a car (and electronics has risen), metals consumption overall will increase exponentially as more of the lesser developed world purchases cars.

Of course all of these data points examine the demand side of the equation. We’ll come back to the supply side in another post. But consider this odd trade agreement as reported in The New York Times between Chile and China hint: Mandarin lessons were part of the accord. China is busy brokering long term raw material, in this case copper, supply arrangements. The long term writing may be on the wall.

–Lisa Reisman

Compounding changes to the China import/export tax and VAT rebate schemes in July of 2007, additional changes were announced on December 14 for implementation on January 1. With help from Jason Zhang, our metals expert in China, we review these changes and offer some early insight into the likely effects.

Broadly, there are three different changes that have been made or are taking place that will affect the markets going forward. These changes specifically include: import duties, changes in export duties and changes in the RMB/USD exchange rate. (more…)

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