Despite setbacks, the long-term outlook for copper is bright
Despite demand from China's electricity industry and problems faced by key producers to expand mines provide support for the metal's price
In August last year, in the wake of the acquisition of the London Metal Exchange by Hong Kong Exchanges and Clearing, Monitor examined the outlook for the LME's flagship metal, copper, and came to a grim conclusion.
China, the column argued, was sitting on a vast overhang of copper stocks, largely accumulated by financial speculators.
With the developed world's demand for resources subdued and China's economic growth set to slow, there was a risk of a sell-off "big enough to drive the price of copper down by 20 per cent".
In hindsight, that warning was probably premature. The big unwinding of copper stocks didn't take place until the first half of this year.
Nevertheless, from September last year to the end of last month, the international price of copper slumped by 19.6 per cent.
Since then, however, it has rebounded by 7.9 per cent.
The rally has been propelled in large part by buying from China. In July, copper imports were up 27 per cent, compared with their average level over the first quarter.
Yet although recent data has raised international hopes that the slowdown in China's economy may be stabilising, as far as the copper price is concerned, the optimism may be short-lived.
Freya Beamish at independent consultancy Lombard Street Research warns that the rise in copper imports is the result of the recent attempts by the Chinese authorities to curb credit expansion through the mainland's shadow financial system.
With other financing channels being closed off, Chinese companies have resorted to their former dodge, buying copper on margin, then using the metal as collateral to obtain low-cost loans.
If she's right, then the current run-up in copper prices is likely to run out of puff before long, overcome by the growing realisation that the economy of China, which is by far the world's largest consumer of the metal, is undergoing a structural slowdown.
Against this gloomy backdrop, it's worth reminding ourselves why the longer-term fundamental outlook for China's copper demand, and for the metal's price, is actually rather positive.
Although China currently makes up for about 40 per cent of global demand, in relative terms, its consumption is low. On a per capita basis, China uses just half as much copper as the United States.
By far, the biggest demand for the metal comes from China's electricity generation and distribution industry, which accounts for about 45 per cent of total consumption.
Yet mainland China uses just half as much electricity per head as Hong Kong, and barely a fifth as much as the US.
As a result, China's demand for power will continue to grow, and so will its demand for copper.
What's more, alternative energy sources, in which China is investing heavily, are far more copper-intensive than traditional methods of power generation.
According to specialist consultancy Urandaline Investments, generating electricity from solar power requires four times as much copper per megawatt as a large coal-fired plant, while solar generation needs 10 times as much.
True, there has been a lot of talk recently about substituting aluminium, of which China has a surplus, for copper, especially in electricity distribution equipment.
But aluminium is neither as conductive as copper, nor as ductile, which limits its potential as a substitute.
Meanwhile, expanding copper mines in big producing countries including Chile, Peru, Indonesia and Zambia is proving fraught with problems.
As a result, the long-term outlook for the price of copper still looks bright, regardless of any temporary setbacks.