Source: Michael Ballanger 05/06/2024
Michael Ballanger of GGM Advisory Inc. shares how India's copper demand may impact the metal's price. Ballanger also reviews the gold and silver market, and shares one company he thinks might have a VMS project.
As I was doing some research this week on the history of copper demand, what started as a focus on China wound up with some interesting revelations surrounding the economic history of neighboring India. Despite going to high school with a number of classmates who had immigrated from India, I never actually took the time to understand the rich history of India, largely because the narrative was always centered around the British Raj and how colonialism saved the poor savages from a grim future.
Nothing could actually be farther from the truth because, for a continuous duration of nearly 1700 years from the year 1 CE, India was the world's largest economy, constituting 35 to 40% of the world's GDP. After the Brits imposed colonial rule in 1858, the state was governed under The British Raj until it achieved independence in 1948. During that 90-year period, the Indian GDP stagnated through plunder by the East India Co. owned by Queen Victoria, and while responsible for the creation of modern railways, canals, roads, bridges, and the system of telegraph links, it resulted in less than 10% of supervisory jobs being held by Indians.
Then, a system of government known for an excess of government intervention in most aspects of economic planning impeded the growth and modernization of the economy until 1991, when a balance of payments crisis forced the liberalization of economic policy, transforming it from command-and-control to laisser-faire capitalism and since then the Indian economy has made tremendous strides in achieving one of the highest growth rates on the plant, achieving a 7.2% GDP growth in 2022 alone.
This is where the story gets interesting. For a country growing at such a dynamic rate, one would think that power generation would be made a priority in order to avoid the loss of power necessary to fuel such a flourishing business environment. However, I was shocked to learn that it was and is certainly not the case.
India has five electricity grids — Northern, Eastern, North-Eastern, Southern and Western. All of them are interconnected to some extent, except the Southern grid. All are run by the state-owned Power Grid Corporation of India Ltd (PGCI), which operates more than 95,000 circuit km of transmission lines. In July 2012, the Northern grid failed with 35,669 MWe load in the early morning, and the following day, it plus parts of two other grids failed again so that over 600 million people in 22 states were without power for up to a day.
A KPMG report in 2007 said that transmission and distribution (T&D) losses were worth more than $6 billion per year. A 2012 report costed the losses as $12.6 billion per year. A 2010 estimate shows big differences among states, with some very high and a national average of 27% T&D loss, well above the target of 15% set in 2001 when the average figure was 34%.
In March 2018, the Indian government stated that nuclear capacity would fall well short of its 63 GWe target and that the total nuclear capacity would likely be about 22.5 GWe by the year 2031. This revised target was reaffirmed by Minister of State Jitendra Singh in December 2022. If India is going to increase its electrical capacity to the order of 40 GWe by 2031, then the amount of copper that will be needed will be enormous, and it will be needed now in order to avoid massive failures.
There are over 30 nuclear reactors either planned or under construction within eight existing power plants, and since India has domestic uranium reserves able to supply them all, the same cannot be said for the copper that will be required in order to expand that sadly-lacking electrical grid.
I believe that the "India Factor" has been largely ignored by those copper bulls, pointing only at China as the engine of demand for copper concentrate. While China has ...