Tuesday, April 19, 2011

Is China moving towards the "copper standard"?

First of all, here is an article from a couple of years ago:

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."


Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".


Now, here is another old article about China investing in copper mines in Peru:

Li Shiping, 47, owns a smelting company that is about to fire up a new electric furnace made with 110 tons of copper, one of thousands of industrial projects in China’s developing interior. To stoke them, a Chinese state-owned mining company will tear down the peak in Peru and ship home the copper. It plans to relocate the town of Morococha, population 5,397. Many, including Ancieta, don’t want to leave.

The project is part of $11 billion in Chinese mining investments planned for Peru, a quarter of the country’s total, according to Fernando Gala, the Peruvian vice minister of mines. China is prospecting for mineral treasures around the world as it develops faster than any major economy in history. Its copper use is growing so quickly that by 2035 global demand for the metal may outstrip supply by 11 million tons, according to CRU, a London-based mining and metals consulting firm.

China’s annual needs for copper will almost triple to 20 million tons by 2035, CRU projects. In 2010, it will consume 6.8 million tons, 38 percent of global production, after more than doubling its share of world purchases this decade, CRU says.

As a result, copper has almost tripled on the London Metal Exchange since December 2008 despite the global recession. The metal closed at $8,200 a metric ton on Oct. 29 [2010]. Jeremy Gray, global head of resources at Standard Chartered Plc in Hong Kong, calls copper “red gold.” He says the price may rise almost 50 percent more to $12,000 in six to 12 months.
Peru and China signed a trade agreement in April 2009 in Beijing that became effective this March [2010]. Peru’s exports rose 31 percent through September, lifted by sales of copper, gold and fishmeal, according to Comexperu, a business trade group based in Lima. The U.S. and China each accounted for a sixth of those sales.


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