Copper demand growth had been decelerating since the 1960s, a reflection of not only slower economic growth globally, but also the world economy becoming less copper-intensive. This trend reversed in the 1990s as Chinese growth began to accelerate after languishing for decades.
China consumed 4.7% of global copper in 1970. By 2014, that number had swelled to nearly 50%
The rise in China's share of global commodity consumption in the past 15 years has been remarkable. China's share of steel demand has ballooned to 45% from 9% since 1990 and coal to 49% from 23%. Although consumption share growth has not been as pronounced in copper, the trend is still the same.
China consumed 4.7% of global copper in 1970. By 2014, that number had swelled to nearly 50%. Since 1990, China's copper consumption has grown at a compound annual rate of 13.8% compared with 0.4% for the rest of the world.
China's incredible growth has underwritten a higher price level over the past 15 years. China's rapid demand growth more than made up for meagre copper consumption growth in the rest of the world and was the primary driver of copper prices. The real price of copper more than tripled from 2000 to 2011 and, despite recent declines, is still more than double the 2000 price today.
China Bottom-Up Outlook: 2015 Demand Could Represent a Cyclical Peak
We employ both end-use bottom-up and macroeconomic top-down approaches to forecast Chinese copper consumption. We believe a combination gives the most complete view of China's future copper demand and allows us to contrast the outlooks for each methodology to arrive at a more substantiated forecast. We begin with our bottom-up approach, focusing on Chinese copper consumption by end-use categories.
Our bottom-up analysis suggests a dramatic slowdown in China's copper demand growth from the 11.0% annual rate notched from 2005 through 2014. We expect little growth in copper consumption through the end of the decade as falling demand in the building construction and power sectors, collectively 60% of total consumption, offsets healthy albeit decelerating growth in consumer-related applications such as automobiles and appliances. We forecast Chinese copper demand declining a cumulative 5.5% to 9.06 million metric tons in 2017 from a cyclical peak of 9.59 million metric tons in 2015, as real estate activity fades to a level more commensurate with underlying urbanization trends and power spending shifts away from copper-heavy distribution to copper-light transmission.
We expect moderate demand growth thereafter as usage in the power and real estate sectors stabilises post-peak and household demand for copper-using automobiles and white goods continues to rise. We forecast 1.8% annual copper demand growth from 2018 through 2020. Demand recovers to 2015 levels by 2020, the end of our explicit forecast.
Our Bearish Outlook for Chinese GDP and FAI Informs Our Weak Copper Outlook
As we have previously written, we think China's economic rebalancing will lead to lower GDP growth than most are anticipating. This has been our stance since 2011, and although some market participants have dialled back their growth forecasts, many remain too bullish, in our view.
For example, the International Monetary Fund still predicts a CAGR of 6.3% for China's GDP between 2014 and 2020. We think GDP growth will be no better than 5% on average over the next five to seven years. More important for copper, this is underpinned by a 1.5% investment growth rate at best.
