China power grid expansion will boost demand for Copper and Aluminium

Spending on China’s power grid, a major consumer of copper and aluminium is forecast to rise at a faster pace in 2013. The State Grid Corporation of China has increased its 2020 target to 94 500km of UHV lines laid compared with 78 000km in the previous target an increase of 21% Barclays said in a report.

If realised this projection of faster grid spending should help boost copper and aluminium demand as UHV lines use copper clad aluminium cables.

As the government has indicated that it will adopt a more selective approach to infrastructure spending and that the power grid is one of its favoured sectors actual spending could exceed the current target.

On the other hand, if the NDRC (National Development and Reform Commission) does not follow up on the policy statement with actual approvals investments may still disappoint in the end.

On balance, we think that a positive surprise is more likely given the government s more accommodating stance. Barclays said.

On Wednesday the China Securities Journal reported that the State Grid has set its 2013 spending target 4% higher y y after lukewarm growth in 2012 of 1.3%.

Government policies toward ultra high voltage (UHV) projects may have turned more positive too. Reports emerged today that a national energy policy conference held this week urged the country to accelerate the construction of cross regional transmission lines a reference to UHV projects.

The State Grid has increased its 2020 UHV line forecast by 21% from previous targets. These higher spending targets, if realized, will help boost copper and aluminum demand.