Monsters of Rock: India may be the next great copper demand hub

ANZ says India will be a major catalyst for copper demand as its decarbonisation and economic growth programs take hold this decade
Indian copper demand could be as high as 3.5Mt by 2030
China stimulus measures fail to spark Aussie equity run as Fortescue weighs down materials sector

Lithium prices, and to some extent prices for other metals like rare earths and nickel, surged higher thanks to China in 2022, where EV sales ran so hard the country hit its 2025 electric vehicle market penetration target three years early.

That has left the battery-led demand for commodities this year in a bit of limbo in 2023, with prices for most metals falling or trading sideways.

But help is on its way for miners as a new force emerges in commodity demand, the world’s most populous country India.

According to ANZ commodity strategists Daniel Hynes and Soni Kumari in a note released yesterday, Indian copper demand will rise 40% on 2022 to 1.5Mt by 2025.

That makes it, the analysts say, the third-largest chomper of the base metal just behind the US, and by the end of the decade it’ll most probably be second behind China.

Hynes and Kumari say India’s rise should ease demand concerns centred on China and its ailing property sector.

“The expansion of India’s manufacturing and infrastructure sectors should see copper demand growth nearly double this year compared with the five years prior to the pandemic. However, that will be amplified over coming years as the electric vehicle (EV) sector ramps up,” they wrote.

“India overtook Japan as the world’s third-largest car maker last year, and EVs accounted for 4% of new vehicle sales. We expect the country to reach its target of 30% of new sales well before 2030.

“The impact of this on copper and other critical minerals will be amplified by India’s push to electrify its bus network. EV buses use four times as much copper as a passenger EV car. We now expect copper demand in India to exceed 1.5mt in 2025, up 40% from 2022.”

A rising force since Covid

While Indian investment was limp from 2016-2020, since Covid the worm has turned.

Each additional US$1m in GDP in India currently equates to 300kg of growth in copper demand, according to ANZ. That will hit 350kg soon as it ramps up spending on decarbonisation, moving towards the Chinese mark of 800kg.

“The decarbonisation of an economy is copper intensive. This should see the metal benefit from government policies over the medium to long term,” Hynes and Kumari said.

“With a goal of achieving 500GW of renewable capacity by 2030, a conservative estimate suggests 40% (400–500kt) of additional copper demand will come from the solar and wind sectors by 2030.

“India’s copper consumption was 1.2mt last year, which is 5% of global demand.

“Based on the consumption-intensity-adjusted growth trend experienced by China, this could rise to 2.5mt by 2030. That represents an annual growth rate of 9.3%.”

“Consumption could reach as much as 3.5mt by 2030 if it experiences growth similar to that of China in 2002–07.”

On top of that, India’s domestic copper supply has slumped in the past five years, with import dependency potentially running as high as 50% by 2030, a boon for seaborne traders.

And what about China?

In the short term China is the main game for metals demand still. And Capital Economics Head of China Economics Julian Evans-Pritchard and China economist Zichun Huang said in a note this afternoon that “stimulus efforts are finally gaining momentum”.

The country’s recovery from its demand killing Covid lockdowns has been less boisterous than hoped for my the market earlier this year.

But commodities have rebounded in the past fortnight as support measures have crystallised, with iron ore trading at US$114/t in Singapore today, levels last seen in April.

“Yesterday, regulators announced measures to support households and shore up the property sector, including looser downpayment requirements and reductions to existing mortgage rates,” Evans-Pritchard and Huang said.

“And today, the state banks began cutting deposit rates.

“The most significant change is the decision to unify the national floor for minimum downpayment ratios at 20% for first homes and 30% for second homes.

“Previously, cities with purchase controls in place were subject to higher floors of 30% and 40%, respectively. The change will affect at least 22 major cities, including many of China’s largest.”

That will all make it much easier to buy a new home, with loan rate cuts also on the horizon.

“Most important (and hardest to predict) will be the impact of the moves on wider confidence, especially in the housing market,” Evans-Pritchard and Huang said.

“Much of the drop in home sales is structural but there are also signs of demand being deferred. If the latest measures can bring back enough of that demand, then they could kick-off a modest cyclical recovery in homes sales and wider economic activity.”

The materials sector failed to fire, however, down 0.44% today.

Much of that can be attributed to $66m capped Fortescue (ASX:FMG), which dropped more than 5% after yet more executive and board departures including short-lived CFO Christine Morris and Fortescue Future Industries director Guy Debelle, who had previously left his post after a short tenure as CFO of FFI in 2022.

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