Since the reform and opening-up policy was introduced, China’s copper industry has maintained a relatively rapid pace of development. The industrial chain has continued to improve, the industrial structure has been steadily optimized, the level of technological equipment has kept rising, the strength of copper enterprises has grown stronger, and the industry’s international influence has steadily expanded. At the same time, structural contradictions in the development of China’s copper industry have become increasingly prominent. Structural issues such as shortages of mineral resources and smelting capacity significantly exceeding the availability of mine resources remain unresolved, thereby hindering the sustained and healthy development of China’s copper industry.

　　China has become the world’s largest producer and consumer of refined copper. In 2002, China’s consumption of refined copper surpassed that of the United States, making it the largest consumer of refined copper globally. By 2006, China’s refined copper production had exceeded 3 million tons, surpassing Chile to become the world’s leading refined copper producer. In 2016, China’s refined copper production reached 84.54 million tons, an increase of 6.1% over the previous year, with an average annual growth rate of 12.0% since the start of the new century and an average annual growth rate of 11.9% during the 12th Five-Year Plan period. Meanwhile, refined copper consumption reached 10.5 million tons, up 6.1% from the previous year, with an average annual growth rate of 11.2% since the start of the new century and an average annual growth rate of 7.7% during the 12th Five-Year Plan period.

　　In 2016, China's total copper consumption reached 11.89 million tons, an increase of 6.6% over the previous year. Per capita annual copper consumption was 8.6 kilograms, up 6.0% from the previous year.

　　Since the beginning of the new century, China’s capacity to secure copper resources has improved, yet its reliance on imports remains above 70%. China’s net imports of copper resources include the metal content of copper concentrates, blister copper and refined copper, recycled copper, and the copper content in net-imported copper products. In 2016, the total metal content of various copper products imported net by China amounted to approximately 9.89 million tons. In 2016, domestic production of copper concentrates totaled 1.85 million tons, and domestic recycling of scrap copper reached about 1.80 million tons. Combined, these two sources provided a total domestic copper resource base of 3.65 million tons. In 2016, China’s total available copper metal supply reached 13.54 million tons, of which domestic copper resources accounted for 26.9% of the supply—down 0.5 percentage points from 2015—and imported copper resources accounted for 73.1% of the supply—up 0.5 percentage points from 2015.

　　The country’s capacity to secure copper mineral resources has also improved. In 2016, the proportion of copper concentrate metal imported by China accounted for 72.1% of the country’s total domestic copper concentrate supply. However, the proportion of copper concentrate metal obtained through overseas investments by Chinese enterprises accounted for 7.5% of the country’s total domestic copper concentrate supply, while the proportion of domestically produced copper concentrate metal accounted for 27.9% of the domestic supply. If we include the copper concentrate metal acquired by Chinese enterprises through overseas investments, the country’s capacity to secure copper mineral resources would further improve.

　　Development and Operational Status of the Copper Industry

　　The copper industry as a whole is showing a trend of stable production, fluctuating yet rising prices, and continuously improving profitability. However, structural challenges such as resource shortages, insufficient innovation, and difficulties in financing remain unresolved, and the foundation for sustained industrial development still needs further consolidation. In the first 10 months of 2017, China’s refined copper production reached 7.371 million tons, up 6.3% year-on-year; copper concentrate metal content totaled 1.416 million tons, an increase of 4.5% over the same period last year; and copper product output (including duplicate statistics among enterprises) amounted to 16.355 million tons, up 3.3% year-on-year. During the first 10 months, the average spot price of copper in the domestic market was 48,388 yuan per ton, representing a year-on-year increase of 32.1%. From January to October, China’s imports of unwrought copper and copper products totaled 24.51 billion U.S. dollars, up 14.9% year-on-year; import volume reached 3.76 million tons, down 7.8% compared to the same period last year. Specifically, October’s import volume was 330,000 tons, a month-on-month decrease of 23.3%. From January to October, China’s imports of copper concentrates totaled 20.33 billion U.S. dollars, up 23.0% year-on-year; physical import volume of copper concentrates reached 13.93 million tons, an increase of 2.9% over the same period last year. Among these, October’s import volume was 1.37 million tons, down 6.8% month-on-month. From January to September, 1,742 large-scale copper enterprises achieved profits totaling 38.21 billion yuan, up 36.8% year-on-year, accounting for 22.1% of the total profits earned by large-scale non-ferrous metal enterprises. Among them, copper mining and beneficiation enterprises reported profits of 5.31 billion yuan, an increase of 139.6%; copper smelting enterprises recorded profits of 11.31 billion yuan, up 37.6%; and copper processing enterprises generated profits of 21.59 billion yuan, up 23.4%.

　　The monthly business sentiment index for China’s copper industry remained within the “normal” range. According to the monthly business sentiment index for China’s copper industry released by the China Nonferrous Metals Industry Association for October 2017, the index stood at 33.40, down 0.42 points from the previous month. This marks the first slight decline in nearly five months; however, the index continues to operate within the “normal” range.

　　In October 2017, among the nine indicators that make up the monthly prosperity index for China Nonferrous Metals Industry, the LME copper settlement price was in the “slightly hot” range; the import volume index, total investment, housing sales area, production index, main business revenue, and total profit were all in the “normal” range; while M2 and power cables were in the “slightly cold” range.

　　Reference Factors Influencing Copper Consumption in Developed Countries

　　The structure of copper consumption and the status of copper recycling in the United States offer valuable lessons for other countries. In the 20th century, the United States was the world’s largest consumer and recycler of copper. The end-use sectors for copper in the U.S. are primarily concentrated in residential construction, the manufacturing of electrical and electronic equipment, industrial machinery and equipment, transportation equipment, and consumer and general goods industries. In 2000, both the total copper consumption and per capita consumption in the U.S. reached a turning point; however, the U.S. remains one of the world’s major copper-consuming countries. In 2000, per capita copper consumption in the U.S. reached 15.1 kilograms, and although it declined to 12 kilograms by 2006, it still significantly exceeded China’s per capita consumption of less than 8 kilograms in 2015. In 2006, the proportion of scrap copper directly used in U.S. copper consumption reached 30.7%. From 1986 to 2006, the U.S. averaged over 1 million tons of scrap copper directly used annually, accounting for an average share of 28.2%—making the U.S. the country with the highest annual direct use of scrap copper in the world. Vigorously developing a circular economy, building a resource-efficient society, and enhancing the efficiency of copper resource utilization will be effective approaches to addressing China’s constraints on copper resources.

　　The growth rate of copper consumption is closely correlated with GDP growth. From 1978 to 2015, the linear correlation coefficient between China’s copper consumption growth and its gross domestic product (GDP) was around 0.9. From 1986 to 2006, the correlation coefficient between changes in U.S. copper consumption and the country’s GDP was also approximately 0.9. During the first decade of the new century, China’s GDP grew at an average annual rate of about 10.5%, and during this period, China’s total copper consumption increased at an average annual rate of 9.4%.

　　China’s copper demand and per capita copper consumption continue to show a growing trend.

　　As an essential foundational raw material for the national economy, copper continues to see growing demand in sectors such as power, information technology, transportation, machinery, and construction, driven by economic development and rising living standards. Over the next 5 to 10 years, China’s urbanization will remain in a phase of rapid development, and the demand for copper across various sectors of the national economy is expected to increase further.

　　According to our forecast, China’s copper demand is likely to peak within the next 5 to 10 years and then enter a plateau period. Preliminary estimates indicate that China’s total copper demand will reach 14 million tons in 2020, 14.5 million tons in 2025, and 14.5 million tons in 2030. Among these, refined copper demand is expected to reach 13 million tons in 2020, 13 million tons in 2025, and 12.5 million tons in 2030. China’s refined copper demand may enter a plateau period—and even experience an inflection point—during the 14th Five-Year Plan period. Over the next 5 to 10 years, per capita copper consumption in China will continue to grow, but it could enter a plateau around 10 kilograms per person per year. The recommended projections for per capita copper consumption are approximately 10.07 kilograms in 2020 and about 10.21 kilograms in 2025; after that, an inflection point may occur. Overall, from 2020 to 2030, per capita copper consumption is likely to remain stable at around 10 kilograms per year.

　　Countermeasures

　　Strengthen the foundation of the mining industry and enhance resource security capabilities. To improve resource security, we must first adhere to the fundamental guiding principles for nonferrous metal mining development: "relying on domestic resources, reinforcing public welfare, depending on science and technology, and strengthening management." The copper industry will closely align with the nation’s mineral exploration initiatives, implement projects aimed at promoting mining development—with a particular focus on domestically scarce copper resources—accelerate the construction of overseas resource bases, and thereby bolster the industry’s resource security capabilities. Second, we must carry out overseas resource-development projects, leveraging the capabilities of leading enterprises with international operational experience to establish development mechanisms that share benefits with the host countries. By doing so, we can establish a number of overseas copper resource bases in resource-rich countries and regions such as neighboring nations, Central Africa, and Latin America, thereby enhancing Chinese enterprises’ control over global resources. Third, we should actively develop urban mineral resources. Currently, China’s stockpile of nonferrous metal waste is entering a phase of sustained growth. By establishing a domestic recycling system for secondary metals, domestic waste will become the most important source of raw materials for the recycled copper industry.

　　The shift from traditional copper materials to high-end copper materials will secure a leading edge in future competition. In expanding the applications of copper materials, key focus areas include the development and application of high-strength, high-conductivity materials, copper alloys for high-speed trains, copper materials for electric vehicles, copper-based materials for environmental protection, high-thermal-conductivity copper alloys, and copper materials for electrical connections. Examples include high-speed train contact wires, lead frames for integrated circuits, photovoltaic copper strips, electrical connection strips, rolled copper foils, internally threaded tubes, externally threaded tubes, high-fin tubes, seawater desalination heating tubes, silicon-phosphorus brass rods for eco-friendly bathroom fixtures, specialized ultra-fine enameled wires, copper-clad aluminum wires, copper-clad aluminum tubes, aluminum-clad copper tubes, and copper-aluminum composite busbars. By closely aligning with market demands and advances in science and technology, traditional copper materials must gradually transition toward modern copper alloys, moving in the direction of higher precision, superior performance, environmental friendliness, and energy efficiency. We should promote the industrial upgrading toward high-end products, establishing several well-planned, uniquely characterized, and industrially clustered deep-processing production bases that can meet the needs of strategic emerging industries as well as major national projects, thereby securing a dominant position in future competition.

　　Further strengthen the supporting role of the copper futures market in enhancing the quality and efficiency of enterprises. As China’s economic standing continues to rise, the pricing power of domestic trading products—such as copper and other nonferrous metal futures—is steadily increasing. The level of openness of China’s domestic futures market is continuously improving; delivery rules are becoming increasingly aligned with international standards; and trading volumes are gradually expanding. As a result, the pricing power of China’s copper futures market is gradually breaking the existing monopoly held by European and American markets, thus giving rise to a new international pricing system characterized by multi-party competition. Currently, the opening price of Shanghai’s nonferrous metal futures has become the benchmark for pricing in the national spot market. Nonferrous metal enterprises are increasingly relying on—and referring to—domestic, especially Shanghai-based, nonferrous metal quotations when drafting purchase and sales contracts, setting prices, and managing inventories. As China consolidates its position as a major global producer and consumer of copper, domestic futures exchanges and copper-producing and trading enterprises should work together to further enhance the futures market’s role in boosting enterprise quality and efficiency.

　　Protect the ecological environment and promote green development of industries. In the development of the copper industry, it is essential to strike a proper balance between economic benefits and environmental benefits, and to clearly and prominently advocate the concept of green development. Strict admission criteria must be enforced, industrial layouts optimized, and the construction of new, renovated, or expanded projects that would increase heavy-metal pollutant emissions—particularly those involving large and medium-sized cities, their immediate suburbs, and densely populated residential areas where environmental conditions are especially demanding—prohibited in regions requiring special protection, such as nature reserves and drinking-water source protection zones. The capacity for copper smelting in areas lacking adequate resource, energy, and environmental carrying capacity must be strictly controlled. Following the model of circular economy development, we should support the establishment of several new industrial demonstration bases for nonferrous metals that boast strong resource foundations, complete industrial chains, distinctive features, efficient resource utilization, and environmental friendliness. We must vigorously promote advanced production technologies that are safe and efficient, consume less energy and resources, meet environmental standards, and achieve high-level comprehensive resource utilization, effectively preventing heavy-metal pollution at its source. Mandatory clean-production audits shall be carried out in accordance with the law. We must strengthen the construction of facilities for the treatment of heavy-metal pollution and encourage enterprises to undertake deep-level treatment beyond compliance with emission standards.

　　Promote the deep integration of industrialization and informatization, and facilitate the transformation from a major raw-materials producer to a global materials powerhouse. Today, information technologies such as the internet, cloud computing, big data, and e-commerce are rapidly advancing, reshaping—or already reshaping—the development landscape of many traditional industries and profoundly impacting all aspects of the national economy, society, and people’s daily lives. In the copper industry, effectively promoting the integration of industrialization and informatization is a crucial support for China’s copper industry to shift from being large in scale to strong in capability. First, by advancing the deep integration of industrialization and informatization, we can enhance the competitiveness and influence of copper enterprises. Second, by promoting this integration, we can boost the economic and social benefits of the industry. Third, by furthering the deep integration of industrialization and informatization, we can strengthen our capacity for scientific and technological innovation and accelerate China’s transition from a major raw-materials producer in the copper industry to a global leader in new materials.

　　Further conduct research on forecasting trends in the consumption of nonferrous metals such as copper, and enhance the level of prediction and early warning. As China’s national economy shifts from sustained high-speed growth to medium-high-speed growth, undergoes structural transformation and upgrading, and as both domestic and international economic environments evolve and technological advancements continue to accelerate, new application areas for copper and other nonferrous metals will emerge, continually expanding the scope of consumption. At the same time, existing application fields may be replaced by newer ones, leading to changes in future demand trends and demand structures for copper in both domestic and international markets. Therefore, studies on China’s copper demand, as well as trends in per capita copper consumption, and forecasts of peak copper demand and the timing of that peak, are not set in stone. Instead, these studies must be continuously updated and refined in response to emerging developments. Based on this ongoing research, targeted recommendations can be made to optimize China’s copper consumption supply structure, prevent supply shortages and overcapacity, and ensure the sustained and healthy development of the copper industry. This work is also of great significance for perfecting the copper futures market. In light of new trends in copper consumption development, we should further refine and improve the market structure of copper futures contracts, aligning with market development trends and demands, and enhancing the rules and systems governing trading, delivery, and warehousing arrangements for the copper futures market. By doing so, we can further expand the breadth and depth of the copper futures market, enabling it to better serve the real economy. At the same time, we must further promote the application of big data within the industry, improve the forecasting and early-warning system for the nonferrous metals sector, and continuously raise the capacity and level of forecasting and early warning in this sector. This will provide crucial reference for restructuring and transforming the nonferrous metals industry, boosting its efficiency, and offering important support for the government’s macroeconomic regulation and enterprises’ scientific decision-making.

Source: Shanghai Institute of Futures and Derivatives, December 18, 2017