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Chilean Drought, Power Shortages Drive Up World Metal Prices
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China built 549 billion yuan ($79 billion) worth of generators and power lines last year, state officials said. Accelerating demand will tighten the nation's power supply again within two years, reported Citigroup, which estimated that shortages there cut first-quarter copper output by 40,000 tons, zinc by 125,000 tons and aluminum by 600,000 tons.
Chile, the world's biggest copper producer, faces the risk of energy rationing after the worst drought in 50 years lowered hydropower reserves during a shortage of natural gas for generators.
Copper may have further to increase. In inflation-adjusted terms, the price has not yet reached a record, according to Barclays. Adjusted for inflation, the metal is trading close to levels last seen a century ago, when the U.S. economy was expanding and the nation was being wired for electricity.
China, which is making a similar transformation, is building power stations and transmission lines that are exacerbating deficits in metals supply. As much as 80 percent of China's grid investment is spent on copper, said Yuan Genfa, secretary general of the Shanghai Electric Wire & Cable Industry Association.
"Over 50 percent of China's copper use is electrical use," said Na Liu, director of Institutional Equity at Scotia Capital Inc. "The electricity grid, for the most part, is copper wire."
"There just hasn't been enough planning to accommodate the growth of Asia's economies," said Francisco Blanch, London-based global head of commodities research at Merrill Lynch. "To allow China and India to have a middle class, we need to go back to the drawing board and boost investments in power infrastructure. And if this doesn't happen, we're going to see even more brown-outs."
Reporters Carli Lourens in Johannesburg and Xiaowei Li in Shanghai contributed to this report.
