| Description |
Demand for industrial minerals like copper is derived from their end-uses. These end-use applications have, however, remained largely unexplored by industry practitioners and academics alike. The industrial nature of copper and lack of consistent data on end-uses have resulted in macroeconomic indicators of economic well-being and industrial activity to be regarded as the primary indicators of copper demand. This historical approach has done little to inform the fundamental drivers of copper demand resulting in extended periods of disequilibrium and costly investment errors. This study develops a mid-tier demand estimation approach that builds upon classical demand theory. We develop a model for global copper demand incorporating prices and income metrics, and end-use indicators derived from the industries to which copper reports and the metal's chemical properties. The model incorporates demographic differences across the panel by employing per capita iterations of key variables. The study suggests strong statistical validity for inclusion of end-use indicators in the demand estimation process. Electrical conductivity is the most attractive property of copper and accounts for 59% of copper use. The model accordingly employed per capita power consumption to represent this aspect of copper demand. The proxy variable to represent construction applications of copper which accounts for 30% of copper's end-uses by industry needs additional work and the results were contrary to expectations. iv The model returned robust estimates for all variables studied and found copper demand to be elastic with respect to power consumption in the long run. The price elasticity estimates were also in accordance with prior research though these estimates included time fixed effects and, therefore, cannot be interpreted as true price elasticity. Copper demand saturation is evident in the postindustrial economies while large population and the fast rate of development in Asian Tiger economies and emerging markets account for the shifting copper demand landscape. The analysis covers thirty five countries that together account for over 90% of globally consumed copper during the period 1960 to 2014. This unique end-use informed approach can be extended to other industrial minerals like aluminum and iron ore and enhance long-term investment health of the mineral extraction industry. |
