Copper Thieves and Murderers -- Director's Cut, Part 3
So why am I so bullish on copper now? Let’s start with India and China.
China: Billions and billions. According to the International Monetary Fund, China's economy – already worth $2.2 trillion -- will expand 10% in 2006, its fourth straight year of double-digit growth.
In China, infrastructure spending hit about $201 billion last year. Going forward, they’re really pulling out the stops. Guandong Province alone will spend $37 billion building new infrastructure. And Beijing plans to pump nearly $40 billion into a massive infrastructure building spree to make sure the city is ready to host the 2008 Olympics.
India: Playing catch-up. Last year, India spent $28 billion, or 3.6% of GDP, on infrastructure, according to a report by JM Morgan Stanley. The IMF now pegs India economic growth at 8.3% this year, up from a 7.3% estimate in April. The Indian economy grew 8.5% in 2005 and 8.9% in the most recent quarter.
Growth in India's $775 billion economy is being driven by rising consumer spending and increased government outlays on ports, roads, power and other infrastructure aimed at attracting more investment in manufacturing. Last year, India spent $28 billion, or 3.6% of GDP, on infrastructure. But India is planning to increase its spending on infrastructure by 25% in the coming fiscal year.
That is a flood of new money that is going to pour into new power plants, roads, power grids and more.
Over the next 10 years, India is already planning to spend $400 billion on infrastructure, but I believe that’s a lowball figure that is going to crank up substantially. Reason: India, with 1.1 billion people, 54% of them under age 25, has a middle class numbering about 300 million people – and it’s growing by 30 million people per year. To stop that middle class from emigrating, India’s infrastructure is going to have to improve substantially.
From copper electrical wiring to machinery to Internet infrastructure to cell phones, the demand in India and China for copper is just going to be huge. HUGE!
The Cell Phone Revolution
About 7% of a cell phone’s weight is copper. When you’re talking hundreds of millions of units, that adds up. So you can see that it’s big news for copper that China is the biggest market in Asia, with 48% of the total cell phone subscribers in the Asia Pacific region. But India is coming on strong. Indian mobile phone companies signed up 5.28 million users just in July!
Globally, According to market researchers at IC Insights, the worldwide cellular phone subscriber base should hit three billion subscribers by the end of next year! That’s about 45% of the world’s population of 6.6 billion. And IC Insights also says 965 MILLION cellular handsets will be sold in 2006, and perhaps 1 BILLION will be sold in 2007.
Is that bullish for copper? Heck, yeah!
Supply Potentially Derailed by Strikes
Labor troubles could cripple copper production for the next year. The workers see prices going higher and want higher wages. But mine owners, desperate to hold down costs, say no way.
A strike at Grupo Mexico’s La Caridad Copper Mine plagued the firm for over four months this summer. A strike at Escondida in Chile, the world’s largest copper mine (8% of total supply), also lowered global production. Teck Cominco’s Highland Valley mine in Canada narrowly avoided a strike. We could see a lot more labor strife going forward – putting a squeeze on supply even as demand ramps up. To me, this paves the way for potentially higher copper prices. Copper is trading at $3.46 per pound now, but I think it could threaten the $4.00-per-pound barrier next year.
We’ll have to see if higher prices dampen demand, or if rip-roaring demand heads higher, shrugging off price concerns.
As for how to play it? See Money and Markets on Wednesday
China: Billions and billions. According to the International Monetary Fund, China's economy – already worth $2.2 trillion -- will expand 10% in 2006, its fourth straight year of double-digit growth.
In China, infrastructure spending hit about $201 billion last year. Going forward, they’re really pulling out the stops. Guandong Province alone will spend $37 billion building new infrastructure. And Beijing plans to pump nearly $40 billion into a massive infrastructure building spree to make sure the city is ready to host the 2008 Olympics.
India: Playing catch-up. Last year, India spent $28 billion, or 3.6% of GDP, on infrastructure, according to a report by JM Morgan Stanley. The IMF now pegs India economic growth at 8.3% this year, up from a 7.3% estimate in April. The Indian economy grew 8.5% in 2005 and 8.9% in the most recent quarter.
Growth in India's $775 billion economy is being driven by rising consumer spending and increased government outlays on ports, roads, power and other infrastructure aimed at attracting more investment in manufacturing. Last year, India spent $28 billion, or 3.6% of GDP, on infrastructure. But India is planning to increase its spending on infrastructure by 25% in the coming fiscal year.
That is a flood of new money that is going to pour into new power plants, roads, power grids and more.
Over the next 10 years, India is already planning to spend $400 billion on infrastructure, but I believe that’s a lowball figure that is going to crank up substantially. Reason: India, with 1.1 billion people, 54% of them under age 25, has a middle class numbering about 300 million people – and it’s growing by 30 million people per year. To stop that middle class from emigrating, India’s infrastructure is going to have to improve substantially.
From copper electrical wiring to machinery to Internet infrastructure to cell phones, the demand in India and China for copper is just going to be huge. HUGE!
The Cell Phone Revolution
About 7% of a cell phone’s weight is copper. When you’re talking hundreds of millions of units, that adds up. So you can see that it’s big news for copper that China is the biggest market in Asia, with 48% of the total cell phone subscribers in the Asia Pacific region. But India is coming on strong. Indian mobile phone companies signed up 5.28 million users just in July!
Globally, According to market researchers at IC Insights, the worldwide cellular phone subscriber base should hit three billion subscribers by the end of next year! That’s about 45% of the world’s population of 6.6 billion. And IC Insights also says 965 MILLION cellular handsets will be sold in 2006, and perhaps 1 BILLION will be sold in 2007.
Is that bullish for copper? Heck, yeah!
Supply Potentially Derailed by Strikes
Labor troubles could cripple copper production for the next year. The workers see prices going higher and want higher wages. But mine owners, desperate to hold down costs, say no way.
A strike at Grupo Mexico’s La Caridad Copper Mine plagued the firm for over four months this summer. A strike at Escondida in Chile, the world’s largest copper mine (8% of total supply), also lowered global production. Teck Cominco’s Highland Valley mine in Canada narrowly avoided a strike. We could see a lot more labor strife going forward – putting a squeeze on supply even as demand ramps up. To me, this paves the way for potentially higher copper prices. Copper is trading at $3.46 per pound now, but I think it could threaten the $4.00-per-pound barrier next year.
We’ll have to see if higher prices dampen demand, or if rip-roaring demand heads higher, shrugging off price concerns.
As for how to play it? See Money and Markets on Wednesday
Check out my new gold and energy blog at MoneyAndMarkets.com
posted by Sean Brodrick @ 3:21 PM
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