MercoPress. South Atlantic News Agency

Chinese substitutions endanger Chile's copper industry

High copper prices are pressing copper-consuming countries such as China to substitute the red metal with lower-priced steel and aluminum, according to information shared at a seminar at Chile's Copper Commission (Cochilco).

Strong Chinese demand has made copper prices soar, and prices have averaged 3 US dollars per pound in 2006. Copper is used in several different manufacturing processes, and Chinese industrialists are highly dependent on copper imported from Chile.

"The lack of copper in China is the weakest link in the country's industry" Chinese expert Wang Ling said at Cochilco's seminar.

Wang Ling's colleague Li Lan added, "China will remain the world's largest market for this metal, but Chinese manufacturers are beginning to look for substitutions." And those substitutes, he said may "come as a surprise to the copper industry."

Li Lan told the copper executives gathered at the seminar that substitution has already started in China, beginning with decoration articles and now moving on to electric cables and other industrial goods.

China's air conditioning industry, for instance, which holds an 80% of the world market for air conditioning machines, recently began replacing copper with stainless steel and aluminum.

More than 50% of the Asian country's copper consumption is used in infrastructural construction and 30% in electrical products.

Prices on the red metal have risen 65% in 2006 compared to prices last year, closing at 3.40 US dollars per pound at London Metal Exchange. Earlier in the week mining experts predicted a long-term drop in copper prices.

David Humphreys, former head economist of mining company Río Tinto, said he expects copper prices to drop and stabilize between 1 and 1.25 US dollars per pound around 2010, as industrial demand decreases.

Copper is the most important of Chile's exports. Chile is the world's biggest producer of copper, providing 35.5% of global output last year.

By Morten Szygenda The Santiago Times