China's investment in smart grids to benefit copper, aluminum

China plans to increase investment in its power sector by 88% under its 2011–2015 plan, and a significant amount of that will be directed towards smart-grid technology, London-based Barclays analyst Gayle Berry writes in a recent research note. 

Smart grids use information to manage supply and consumption and improve overall energy efficiency, Berry says, and can adjust electrical loads to help avert situations like blackouts and cope with unpredictable energy use and supply.

“These [smart grid] networks often contain more copper, in some cases using 4.8 kilograms of copper per square metre, compared with 2.8 kilograms copper per square metre for a normal building, due to the need for things like flowmeters, sensors, controls and intelligent energy meters,” Berry explains. “The investment will also include the build out of ultra-high voltage transmission to connect grids over vast distances, the cables for which are aluminum-intensive using around 1.7 tonnes per kilometre.”

The power sector in China makes up about 40% of Chinese copper consumption and 16% of its aluminum consumption, Berry adds.

Of the US$250 billion the Chinese State Grid expects to invest in power between 2011 and 2015, US$45 billion will be directed into smart-grid technology, he argues, and the lion’s share of the spending on smart grids — and demand growth for the raw materials used in them — will take place this year and next year.

Citing a report by consulting and marketing firm CBI China, Berry points out that the country’s investment in smart grids last year did not reach the 51.8 billion renminbi  (US$8.2 billion) allocated to it, and that consequently “there could be a further ramping up of spending over the coming years as investment aims are caught up.”

He also points out that economists at Barclays believe that China’s commercial banks have recently boosted lending to the power industry.  

“Overall, while areas of consumption such as white goods and private residential construction have been soft this year so far, we believe that copper and aluminum consumption in the power sector . . . will prove to be a source of demand strength.”