“Inflation and the Finite endgame” Peak Copper. Could the copper shortage lead to a technological collapse? (Posted on May 24, 2021. A.Glass 2021)
Charts: Top. The Copper price since 1960. Botton. China’s consumption of Copper since 2000.
On June the 12th 2020, global markets took a substantial hit as the second wave of Covid-19 swept across the Northern Hemisphere, it was the Federal Reserve that, after their two day meeting on the 9th June, stated that the U.S. Gross Domestic Product (GDP) will fall to 6.5% and that unemployment will remain at 9.3% by the end of 2020. Committed to its 0% interest rate mandate and the extraordinary asset buyback program until 2022. They, the Fed committee members after June meeting, unleashed, at least verbally their greatest fear, that deflation has taken hold over America. With the National Bureau of Economic Research (NBER) declared the U.S. economy had fallen into a recession since February 2020, oil, which plunged to negative levels on the 20th May 2020 had clawed back to 36 dollars a barrel. All pointing to the justification that these massive interventions by Central Banks, more so the Federal Reserve, to keep markets liquid with ultra low interest rates has worked flooding the financial system with U.S. Dollars. However, in a metaphorical sense, the cannery in the coal mine which is the detriment of money printing is inflation. With the copper price already at all time highs in 2020, even when the industrialized world went into shutdowns and quarantines to stave of the COVID-19 epidemic, so did the copper mines, demand collapsed, yet the price did not. And the reason? China.
China accounts for over 50% of global copper demand and China like the rest if the world took an economic hit with COVID-19, once again, to forestall any deflationary spiral, China like other global governments have spent big on their infrastructure stimulus plans, that for the most part, throughout history, have proven to fail more than not. Notably was Japan’s lost “30 years’” of government spending on projects in an overall attempt at revitalizing an economy, which ended up, literally, creating bridges and roads to nowhere. Now sandaled with debt, the Japanese economy is almost completely reliant on its Central Bank to fund the entire country and China as a powerhouse economy is no different. In fact it has mirrored the Japanese stimulus rulebook since 2008, when the Chinese government spent over $500 Billion in what could be considered, even though it was destined to be an internal boost to the economy, was actually global stimulus package, that, at the time, also included government backed funds to buy securities to underwrite the heavily invested citizens who have poured millions into the Shanghai Stock Market. This avalanche of Government sponsored programs from China has been astounding in its magnitude yet aware that the Chinese consumer is the luxury buyer of the West, these consumption lead programs to reinvigorate an economy, mixed with internal construction and manufacturing for the local populous attributed to, as it stands now, at an unfathomable CN¥ 39 Trillion or $6 Trillion USD, at close to 45% of Gross Domestic Product (GDP). It is the Shadow Banking system in China that has become the real concern, with Local and State Governments all intertwined in a derivative debt binge with the so-called private sector which has been estimated, although not divulged by Chinese regulatory authorities, at $30 Trillion, have sent debt over 90% of the Chinese GDP.
And included in this 90% debt ratio, of May 2020 is China’s 2nd biggest stimulus program in history, akin to the 2008 bailout of the economy it is also at CN¥ 4 trillion ($500 Billion USD), which is essentially the same stimulus on paper, aimed mostly at construction and manufacturing, offering CN¥ 2 billion ($419 million USD) to develop electrical service stations for the Electrical Vehicle (EV) market. Heralded as the digital infrastructure or “ new infrastructure ” future plan, the only caveats, so far, have being the restrains of direct payments to its citizens, rather the Chinese lawgivers digitally have sent out to cell phones short term spending coupons with expiry dates. Clearly an attempt at offsetting the growing food inflation problem in China, which began in February 2020 when the demand for pork assisted in pushing up prices to 20%, lifting consumer inflation to 5.4% year-on-year. This 2025 “New Infrastructure plan” in all of its ambition, with inflation lurking, is to completely digitize the Chinese economy. However, the bane of inflation is now spreading from the finite resources such as oil into the copper markets and the correlation is striking, although it has been said there are 1.64 trillion barrels of proven oil fields left, equivalent to 46 years of global consumption and 870 million tons of copper, with an overall annual global consumption at 28 million tons, China is gobbling up copper at an insatiable rate and by 2022 it will be using and stockpiling 13 million tons annually. In simple economic terms demand is now outstripping supply, with oil linked to both inflation and geopolitical woes, copper is now also becoming a hedge against inflation and the fact that China’s exigent appetite for copper via China’s trillion dollars worth of 12 years of conservative and massive stimulus programs. But, the elephant in the room is still the largest global economy, America. Passing in March 2021 was the post COVID-19 recovery package as one of the largest in history, with the majority of the stimulus to go towards American workers and their families, it is the looming 2 trillion infrastructure plan, that has yet to pass through Congress, which may end up breaking the economy rather than fixing it. The beast in this proposed stimulus plan is the Transportation Infrastructure price tag sitting at $621 billion, with $174 billion, smaller than Chinese EV stimulus spending, allocated towards electrical vehicles and charging stations.
And the most superior conductor of electricity is of course Copper, second to silver, there is no other material that is a suitable conduit for electrical components, a crucial element in the computer chip industry. It was in 1997, at the dawn of the digital revolution and Internet that the computer giant IBM decided to use copper for microprocessing wiring rather than aluminum wire. The theory revolutionized the processing power in an effort to offset, ironically, Moores Law, which states that the microprocessing power of a computer chip will double every two years – thus making Computers and electronics cheaper for the consumer. Yet, as chips have gotten smaller by using Copper as the semiconductor, the costs may not, putting an end to Moores Law, by its economic definition of cheaper hardware and software. As copper becomes more expensive, so are the costs in drawing it out of the ground, according to an S&P report on the current mining output for the Copper lndustry, there has been a sharp collapse in production compared to the increases in global demand. Between 1990 and 2020 there have been 229 new discoverers, with 146 that are not in production, with only 11 in development and 3 competed as mining projects.
Yet, these inflated ambitions of trillions of dollars of stimulus plans in a post-padnemic, particularly for the Electrical Car industry may end up bankrupting the development of electronics by the sheer amount costs involved. And it is curse of inflation that may strike from all sides for the consumer, even if we have reached Peak Copper – prices will begin to exponentially spike to a point of unattainability. The benefits of technology may be priced out into an inflationary collapse or in the words of mining engineer and economic geologist Ira Beaman Joralemon (1883-1975), although a doomsday scenario based on a 20 year projection, famously said in 1924 “… the age of electricity and of copper will be short. At the intense rate of production that must come, the copper supply of the world will last hardly a score of years. … Our civilization based on electrical power will dwindle and die.”
96 Years later, will it begin to ring true?
Authored: A.Glass 2021
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