Tuesday, January 30, 2007

A bit about Copper

Read an interesting comment posted by Rob Kirby on copper: Contrary Views on the News

This section is worth reading:


China And Base Commodities In Context, Perhaps?

So, while empirically – a current chart of the price of copper looks like this;

We might be well advised to remember that while this graph illustrates the price of copper falling off a cliff – it really only mirrors the U.S. housing industry to a tee. Perhaps we should all stop and take stock of what is going on regarding copper in China. Remember folks, copper is essential to the build out of infrastructure – equally as is nickel.

Has anyone [namely the copper bears] stopped to consider the non-confirmational behavior of nickel recently? Take a look:

Last I read was that China is still expecting GDP growth of double digits++. The dynamic driving infrastructure build out in China is vastly different than “home building in the U.S.” Firstly, in China – infrastructure build out is the NATIONAL POLICY of the best heeled purchaser [the Chinese Gov’t] the planet has ever seen and they keep getting RICHER – as evidenced by their swelling foreign reserve account.

While the U.S. consumer is SPENT – we’ve all known that for a long time.

Now, China’s exports to the U.S. account for roughly 8% of Chinese GDP. If this trade was cut to ZERO – and how likely is this? – China would likely still have substantially positive GDP growth.

Additionally, while the Chinese are well known to be “hoarders” – in the past they have been shown to be totally absent from [or even sellers in] strategically important markets which they CATEGORICALLY MUST be major buyers in – but only for short periods of time – like here and now in COPPER.

For those with good memories, it was just a couple of years ago that a China Aviation Oil blew up “shorting oil” – or jet fuel to be more exact – and then hid the loss. I’m sure everyone can appreciate the FACT that China is CATEGORICALLY NOT a REAL exporter of petroleum products.

In the meantime – the charts are all “set up” so that a strategic PUSH by a major industry/futures player [like a large investment bank/futures player, perhaps?] on copper in the next few days will have every Technician in the bloomin' world pressing the ejector seats on their positions with CNBC, Bloomberg et al right at their sides TRUMPETING – and giving the play-by-play demise of the commodity bull.

Remember folks, asset prices like base commodities are set in global markets – if markets really are “free” – and have been raising largely in response to excessive money [debt] and credit creation. While a housing slump in the U.S. has a definite effect on domestic U.S. demand, growth [and ultimately price] at the margins in many of these base commodities is now set in foreign lands.

I’ve said it before but it bears repeating, stockpiles of too many of these strategic base commodities are at historic lows – until that picture fundamentally changes – everyone should treat their investments in companies that produce them accordingly.