This page has been archived and commenting is disabled.
Red Alert on the Red Metal?
At the end of last year I made predictions (a total of 44) of what might come. So far I’ve got (at least) one right and other dead wrong. I’m worried about the one I'm wrong on.
Right
-Volatility is going up across the board. If you have the stomach for the swings that are coming across all markets there is a ton of money to be made; balls and timing are all that are necessary. The markets will create dozens of opportunities to make and lose.
.
Wrong
-Copper will continue to rise. This metal will benefit as the poor man’s gold. Why buy an ounce of something for $1,600 when you can have a whole pound of something else for only $5? The logic is compelling only because there is no logic.
.
Copper is looking very stinky on the charts.
.
Does it matter if copper breaks down? In the normal course of things I would say no. The demand side is slipping on a global basis; there’s plenty of metal around, so lower prices are not much of a surprise. But there is a wild card on copper this time around. I’m wondering if the crap out in copper is going to bring indigestion to China.
Entities in China have been using copper warehouse stocks as collateral for financing all manner of things for the past two years (L/C backed financing). The estimates for how much has been done of this are not clear. The range is from $7-10 billion.
That China Inc. has been borrowing using copper collateralized debt is an old story. The following links discuss this in depth.
FTAlphaville – Why the Chinese copper financing scheme is a big deal
WSJ - China's Doctored Copper Demand
FTAlphaville - Simply amazing commodity collateral shenanigans in China
Credit Writedowns - The debt-financed investments of Chinese state-owned enterprises
The Telegraph - A 'Copper Standard' for the world's currency system?
Business Insider – Credit-Mad Chinese Companies Are Hoarding Copper In A Ponzi Scheme For New Loans
Zero Hedge – Copper: More Than China's Property Market
.
This FTA story ended with this observation:
But, if prices fall seriously beyond the face value of their loan exposure — the risk of LCs being thrown into sudden and immediate ‘non-payment danger’ rises exponentially.
I think we have to be pretty close to where the rubber meets this road. One thing for sure, those lenders (and borrowers) who have relied on this scheme in the past will find the door closed for new financings today. There is a growing risk that some of the underlying debt will not be money good, and the copper inventory will have to get sold.
Should this get rolling we will see it in the print. The (so far) orderly retreat in copper will accelerate. Don’t read this and conclude that I’m recommending a short in copper. What I’m suggesting is that one watch the copper price as a leading indicator of a funding problem in China. One breakdown may lead to another.
China Inc. could solve the problem in an hour or two. They could offer to buy all the excess metal at $4.50 a pound. But that would be a bailout of state owned lenders. That would be a slippery slope that would lead to more bailouts of an already over levered system. Either way, the availability of credit would dry up under these conditions.
What the world economy (and the equity markets) doesn’t want to hear about right now is a hiccup in China that ratchets growth down another notch. We might just get that.
.
»
- advertisements -
Funny, I was just pointing out to some friends the other day that the copper price staying flat/lower while inventory appears to be declining....
not a good sign for a bellweather industrial metal...
If I read correctly... means despite declining inventory there is no demand that is pumping up prices... inventory drawdown?
Well, at very least - there is a slowdown coming.
I think the remainder of this year and into earl 2012 will see a unprecedented move in the Maslow's Hierarchy of Needs trade, namely that the only things holding/maintaining value will be the very base of that hierarchy, with all levels above depreciating at rates positively correlated to their "unnecessariness" to basic human life. Copper is nice, but probably a couple of levels away from the base. It will get sold hard, but will still "outperform" plenty of things, such as a particular maker of stylish and overpriced electronics.
actually the reason you were wrong on copper is precisely because your argument was in fact logical. where there is no logic is in bidding gold to totally insane levels...which is exactly why you should own gold and not own copper. Over the weekend i was jaw-boning with a friend about using the natural gas electrical generator he had to create "the world's fastest lawn mower." our intent is to the electricity generated by the engine to go to servo motors which will power each wheel simultaneously. needless to say "it's copper intensive" and since it's already been done by the defense department (although i am unclear if they have a lawn mower application as of yet) it's actually kind of fun to throw some of these toy ideas around and actually create something. beats talking monetary policy that's for sure.
It was done by Porsche in 1899 believe it or not. Look up Lohner Porsche.
Depends on what you do.
I actually create things 50-60 hours a week- in my off time, it's a relief to think about something else.
Here is where you belong. http://www.instructables.com/
It bodes well for SILVER prices when COPPER is stacked up in warehouses and dropping in price.
Closing copper mines means lower silver production and higher silver prices.
Perfect storm coming up for Ag IMHO.
Copper is overbought imo. There are hundreds of thousands of pouinds of copper sitting in warehouses across the globe that countries and investors bought just sitting idle....just like the massive supplies of gas...same goes for copper.
I don't see copper rising any time soon..too much supply as demand plunges.
As soon as I read that JPM were starting a copper ETF I knew it was some trade-war style chess move against China.
It is much, much, much worse than that. There is no free market and no understanding of supply and demand because the I-Banks and traders, who have no use for commodities themselve set and manipulate price with no regard for fundamentals.
Copper as collateral is only one symptom of that and yes, I agree the government & politicians are trying to both benefit from and compensate for the broken system.
It is completely broken.
copper jewelry any one?
It has been said that tops are covered in copper...
If Chi's collapse hard, the sh*** hits the fan. Better duck and cover!
I do think China will surprise us in the not too distant future.
All you need know about copper!
Many excellent graphs also.
http://www.theoildrum.com/node/6307
post by Jean Laherrère.
Copper & gold & oil
Gold production has peaked in 2000 and copper will likely peak in 2020. Their growth was roughly parallel (with a 20 years gap).
Copper's price in 1998 dollars has been chaotic with a sharp increase in 2006 (still, lower than in 1900!), but the gold price was also chaotic.
Conclusions
Copper has been an important mineral in the world growth, in use for at least 10 000 years. The Bronze Age is well known for having replaced the Stone Age, and bronze is the alloy of copper and tin.
Copper has the second highest electrical conductivity after silver. Its price went so high that copper cables are now often stolen, disturbing telephone and Internet communications. Copper is used in piping (water supply, refrigeration and air conditioning). Measured by weight, it is the third most important metal used by man after iron and aluminium (Radetzki 2009). Its use is challenged by new substitutes, but copper production will peak because it is a limited resource amounting to around 1400 Mt. Unlike oil, copper can be recycled, but developing countries’ needs are huge.
Chile and China dominate the world's copper production. But Chile's production peaked in 2007 and China will likely peak around 2020. The future of copper is uncertain!
The Copper peak seems a real concern for many and there are several “Peak Copper” sites. The use of peak xxx has become a fashion following the introduction of the term Peak oil by Colin Campbell in 2001. Peak fat is described by Ugo Bardi.
From Goggle (February 2010) peak oil finds 2 080 000 quotes but oil peak only 91 400 quotes; peak copper finds 53 100 quotes, but copper peak only 24 100 quotes.
The Copper peak is not something new! The only question is when.
Jean has long been a friend and contributor to TheOilDrum, providing insights on such issues as Methane Hydrates, Oil Prices or Gold Depletion. His posts can be browsed here.
Copper is good stuff, no arguing that.
But, and this is a big but, plastics can take the place of copper for many uses, and so can aluminum. For instance- I still have copper plumbing in my house, but when I installed a fridge with an ice maker last year, copper piping was the last thing I wanted to mess with. For about 1/8 the price, I got PEX tubing and fittings, and it made the job far, far quicker.
A couple of years ago, the phone company irritated me by shaking the hell out of my house when I was trying to sleep- I was not, and am not a customer of theirs, so I went out to ask them what the hell they thought they were doing digging up my yard. They were tearing out the copper lines, and replacing them with fiber optic cable. Still didn't like it, but they were already done by the time I got out there.
The feed line from the electric company into my circuit breaker is aluminum, as is the ground wire. Aluminum is a great conductor, and serves as a very realistic, as well as light, substitute for the red metal.
Refrigeration lines are also moving more and more towards aluminum.
I still like copper, but I think eventually it's main use will be for nostalgic things, like kettles and shades on outdoor lamps. There is still enough of a premium on that kind of thing to justify using it in lieu of aluminum or plastics.
That's not to say it isn't a decent investment, if you have the room to buy and hold for the next peak- it just isn't going to be overtaking silver or gold anytime soon.
just wait. twenty years from now when you find out plastic piping becomes the new asbestos
My instinctive thought too.
Luckily Elenin/Nibiru will take care of "Long enough timelines", eh?
ORI
The five year chart doesn't tell you much. I looked up the copper contract on the CME, basis Dec., and it turns out you can buy it at this price; it will rally with the stock market for at least a few months. I know you're no very good at this, so I decided to help. Also, I sold three Aug. 2012, repeat.2012, Feeder Cattle contracts this morning at 143.500; the object being to ride this over high basis down until the market demonstrates its yearly low, (it's a seasonal), and then buy six of these to go net Long three. Currently up $12,000 on my S&P500 position; anounced here when bought.
An old story but it might have some influence on Coppers future price direction-
***************
Private investors in China, the world’s largest metals user, have stockpiled “substantial” quantities of copper as the government ramps up stimulus spending to spur the economy, according to Sucden Financial Ltd.
Pig farmers and other speculators may have amassed more than 50,000 metric tons, Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden, wrote in an e- mailed report after a visit to China. That’s about half the level of inventories tallied by the Shanghai Futures Exchange, which stood last week at a two-year high of 97,396 tons.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1B_ZBQfii8Q
I am nearly done selling all my physical gold. I bought it years ago and will be done with it soon. I am also negative on GLD and some equities like AMZN (as of yesterday). HOWEVER I do believe that physical gold will do very well in the long run and plan to buy back in down the road.
My thinking is that this is all an acute $ liquidity crisis right now as opposed to an immediate US solvency crisis.
You think the US is in a liquidity crisis and I'd not in a solvency crisis? Apparently you believe we need just a little more debt to get us through your liquidity crisis and then we can start paying down the federal debt.
I'll happily take your gold off your hands, sucker.
http://fofoa.blogspot.com/2011/04/big-gap-in-understanding-weakens.html
Why is lumber also dropping?
Newpapers dying
My best guess would be because were not building anything. BUT, we are making chop sticks for China in Georgia and Alabama! Totally true! Search it.
The Bad Guy..
It's really sad how much viable equipment and vehicles are getting chopped or scrapped. I already saved an old sailboat from the scrapyards, and am accumulating machine tools.
I'm afraid when America decides to manufacture things again, we won't have any machinery left to do so. The installed industrial base is getting sold for scrap, and majority of new industry is being built overseas.
"I'm afraid when America decides to manufacture things again, we won't have any machinery left to do so."
<font=sarc/>Easy - I'm sure our current administration has a real solution, such as buying our machine tools overseas? <sarc off/>
Not enough bullish hurricanes to clear excess inventory.
I was actually long copper Q1 09 to Q1 11 instead of gold. It was very profitable. I switched into gold then and have no regrets. Copper has a direct economic relationship. Gold is an inflationary/risk hedge. I havent been long gold for a LONG time as I felt other investment alternatives offered better returns. That has changed and not likely to reverse for quite some time. Although buying gold in 2000 and holding to the present has been an excellent investment.
Bruce, what the hell am I going to do with a pound of copper?
fun wintertime experiments? ;~)
http://veracityvoice.com/?p=9691
"Bruce, what the hell am I going to do with a pound of copper?"
Call Hank Reardon. Everyone knows that copper is an essential part of the recipe for Reardon Metal TM . As soon as the orders for new rail start coming in, the demand for the copper in storage will surely pick up. Check with Dagny Taggart - I have seen her post here off and on. She will know what the delivery schedule for that line she's building to Colorado looks like. Oh, and if you get her brother, just hang up. He's a rotten bastard that just can't be trusted!
Makes a nice door stop.
Prices of anything mean nothing anymore. Copper, Gold, Stocks, college education, my car...when central governments come into a space, they fundamentally distort prices to the point where they are meaningless. Headlines and rumors move prices up and down with no regard to underlying demand and supply...this is where we are now..
There haven't been as many stories on the local news of stolen piping from unattended buildings/construction sites lately.
Of course on the news this morning there was a report that a church has had it's wiring stolen for the copper - obviously the criminal element hasn't read Bruce's report yet.
Not good...breaking below the May low....guess the IMF declining out look is correct.
HARPEX is also in 2010 territory showing a rather obvious double dip.
http://www.harperpetersen.com/harpex/harpexRH.do?timePeriod=Years5&&data...
It's very good; it means it's time to buy. that's when you buy things if you're a trader; when they're cheap. What you imagined it "indicated" will change as the price rallies. You can Copper today on the CME basis Dec.; for what? Profit. dollars. the stuff you spend. It's shot it's wad on the downside.
copper is sending a clear signal
No recovery, no copper needed.
The Bad Guy..
Regardless, copper is a long term lock for upside appreciation. A finite amount of ore in the ground versus unlimited amounts of fiat currency. The united states nickel is the last US coin with any intrinsic value as it is 75% copper, 25% nickel and is currently worth 115% of its face value. That's a 15% profit with NO downside risk.
it really is the perfect hedge isn't it?
double bonus: coins aren't controlled by the FED.
True, they are issued by the Treasury Dept. I read an article that they want to end minting pennies and nickles due to elevated copper prices, it's costing them 3c to mint 1 penny. Search.
only 3 cents? can't be. you have to look at both the metal price and manufacturing price. total cost per 1 cent coin should be around 12 cents if i remember correctly.
now that's a money multiplier, damn. that's better than fractional reserve lending pre-Gramm-Leach-Bailey.
i'm tellin ya, Timmay's looking in the wrong direction. if he would just let everything deflate so they'd have to print more coins, he'd be a hero. add the silver quarters & gold grams, we'd be all set. no FED needed.
and then there's this guy trying to get a law passed making pre 1982 coins meltable:
http://www.dispatch.com/content/stories/local/2007/11/01/cent.html
It's also illegal to melt down. And when you're talking more than a few grand or so in $, that's a lot of metal to hold on to. Not what I would consider a personal investment vehicle. But I wouldn't doubt that the nickel is one of the first things to dissapear when the $ reverts to mean.
Back in the 70s when silver coins melt value exceeded face value, Canadians took Canadian coins to the US and traded them for American coins.
The Canadians melted the American coins in Canada (legally) while the Americans melted the Canadian coins in the US (legally).
There is usually a workaround if you look for it.
when the government and big banks are in collusion to pillage the treasury and give taxpayers the bill, that's when i stop worrying about what's "illegal".
Just quit spending them, and throw them in a can. Someday they will trade just like the bags of junk silver do today.