China's decades-long boom in copper demand belies serious questions about whether that demand is increasingly driven by speculation. The country's cheap, widely available storage space has made it an attractive place for foreign companies to store copper reserves. This has resulted in large stockpiles and given rise to schemes such as domestic companies using the warehouse receipts as collateral to get bank loans with which to play in other markets (especially real estate). Foreign companies have also used copper trades to sneak "hot money" into China in order to benefit from yuan appreciation. According to these sources, one result of these schemes is speculative demand for copper that exceeds the industrial need — perhaps by as much as two million metric tons. Thus, large, off-the-record stocks of copper tighten global supplies and drive up prices further. Another result is greater pressure on end users who have trouble paying the high prices and obtaining financing. This trend is booming at a time when manufacturers are increasingly making new designs that reduce copper content or use alternatives to copper and are therefore gradually reducing the industrial need for it.
