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Copper Surges To 4-Month High

Tyler Durden's picture




 

Copper has rallied almost 6% in the last few weeks with a 1.25% surge today sending the 'economic' metal back to near 4-month highs. This must means demand is picking up, right? This must mean the world is ok, right? Chatter is that this morning's home sales 'noise' surprise spike was the catalyst but it appears much more likely that a combination of a continued squeeze of a very-extended spec short position and the ongoing unwind of China's commodity-finance-deals is the real catalyst. As the market comes to terms with synthetic demand (CCFD unwinds buying back hedges) dominating any excess supply in the spot market, futures positioning still has more room to go.

 

Copper is surging today...

 

Copper short positioning has tumbled since the Qingdao probe was admitted to...

 

Which makes sense as Goldman suggest below...

Goldman
concludes that "an unwind of Chinese commodity financing deals would
likely result in an increase in availability of physical inventory
(physical selling), and an increase in futures buying (buying back the
hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower.

 

 

Of course, we assume that no less renowned trader than Dennis Gartman has unwound his short copper trade already at a major gain.

*  *  *

The market's shift appear to point to the fact that - just as in the case of the gold - the synthetic market for copper (futures/forwards) is dominant in the pricing structure for the metal (as opposed to goldman's hope that the spot excess supply would dominate). Although they have been right that near-month spot excess supply has crushed the commodity curve...

 

So once again - this 'market' signalling is anything but a sign that growth is back; merely speculative shorts/hedges being blown out and a fractional ponzi lending scheme unwinding in China.

 

Charts: Bloomberg

 

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Mon, 06/30/2014 - 12:48 | 4910019 Manthong
Manthong's picture

A lot of plumbing and electric to replace in Detroit.

Maybe the Chinese are moving in after all.

Mon, 06/30/2014 - 13:11 | 4910138 Dr. Engali
Dr. Engali's picture

Detroit will be rebuilt usin Pex piping, the new copper:

 

http://www.familyhandyman.com/plumbing/pex-piping-everything-you-need-to...

Mon, 06/30/2014 - 13:12 | 4910149 max2205
max2205's picture

Zh calls the bottom in copper. ..next Baltic dry?

Mon, 06/30/2014 - 13:43 | 4910291 zaphod
zaphod's picture

Tyler, Please stop misrepresenting what is actually happening

Instead of saying "Copper surges to a 4-month high" for now on say "The dollar crashes to a 4-month low against copper". This applies to just about anything that is real vs. fiat (which includes PMs, lead, bitcoins, oil, etc)

When you read about Germany's hyperinflation in the 20s, historians are always baffled at how the german press kept describing events as prices going up, instead of the truth which was the mark going down. Don't be the german press of the 20s....

Mon, 06/30/2014 - 13:49 | 4910334 NoDebt
NoDebt's picture

Wait, the China rehypothecation/collateral chain unwind can't be cited as the reason for both the drop in price AND the reason for today's rise in price.  That's dirty pool, Tylers.  I put in the time here on ZH to learn how the futures interact with spot price on the way up (and what would likely go into reverse on the way down).  Now I'm to believe the same reason explains today's rise in copper?

You know what?  Bullshit.

How about this explanation instead:  The China commodity/rehypothecation thing has been over-blown and over-hyped and isn't going to touch off a worldwide financial contagion.  Period.

Mon, 06/30/2014 - 15:56 | 4911030 Honey Badger
Honey Badger's picture

I love ZH, but your post is +1000

Mon, 06/30/2014 - 13:50 | 4910335 666
666's picture

Copper is in demand as we stockpile more bullets for the upcoming revolution.

Mon, 06/30/2014 - 14:09 | 4910418 Groundhog Day
Groundhog Day's picture

Coming soon to AU and AG

Mon, 06/30/2014 - 13:45 | 4910314 oddjob
oddjob's picture

If you want to bury those stab-in-tees behind drywall, be my guest.

If you are going to use cross linked PolyE, go Wirsbo.

http://www.uponorpro.com/Extranet/Layouts/ProductAndToolModal.aspx?id=%7B4877E84D-7371-4000-83A7-C623E4F645B5%7D

Mon, 06/30/2014 - 12:49 | 4910024 DoChenRollingBearing
DoChenRollingBearing's picture

"Paper Copper"

Mon, 06/30/2014 - 12:50 | 4910039 SheepDog-One
SheepDog-One's picture

Copper price collapses- Don't worry about that, copper is irrelevant.
Copper prices surges- Ah! That means the world economy is good!

Mon, 06/30/2014 - 12:51 | 4910042 oklaboy
oklaboy's picture

ahhh the stealth Dr. Copper..

Mon, 06/30/2014 - 12:51 | 4910043 NoTTD
NoTTD's picture

What??? You mean discovering that a stockpile of an item doesn't exist is going to drive the price of the actual commodity up?  I thought those rules were in permanent suspension.

Mon, 06/30/2014 - 12:57 | 4910075 Debeachesand Je...
Debeachesand Jerseyshores's picture

Next up,the unwind of Gold and Silver.

 

This should be very entertaining for PM investors etc.....

Mon, 06/30/2014 - 13:39 | 4910094 cowdiddly
cowdiddly's picture

Still at 2007 prices yawn. You Chinamen need some phys to cover your wild west paper? Pay up MOFO's this is the real deal. HA

I got a rusty horse trailer full. My farm bank acct of sorts. waiting for 4 bucks. I buy alot of it off the local idiots for 2 bucks. Then its sold and gold and silver is bought with the proceeds for my retirement fund.  Who says there is no such thing as Alchemy? You can turn lead into gold trust me, but you have to forget that Rosetta stone malarkey to see the light, the solution was right there in front of you the whole time.  lol

formula goes like this. PB-CU-AL---------> AG------play gold silver ratio--------AU. 

Takes up less and less room and nothing is ever sold that is not reinvested, I gain every step but sometimes it takes years for conversion.

And I have a farm pond were my boat keeps tipping over thats starting to look like a water fountain at Disney. Pray for rain to make the water muddy......, damn droughts.

Mon, 06/30/2014 - 13:05 | 4910108 Quinvarius
Quinvarius's picture

Because empty warehouses were supposed to cause a selloff according to Goldman Sachs.

Mon, 06/30/2014 - 13:24 | 4910211 Pennsylvania_Dutch
Pennsylvania_Dutch's picture

If an unwind of the CFD would led to an increase of physical availability, why are than the LME stocks at a 5 year low?

Mon, 06/30/2014 - 13:29 | 4910238 youngman
youngman's picture

Should be a drop in the price of Birth Control pills this Am too....but I would think is you gave a bank 10 tons of copper as security..and you do not have the 10 tons...you had better buy it somehow to make good on your promise..or else...to me that is Buiness 101

Mon, 06/30/2014 - 13:32 | 4910244 orangegeek
orangegeek's picture

Copper was at a 4 year low on March 17 - been moving sideways up since - from 290 to 320

 

just another move up before the next deflationary move down

Mon, 06/30/2014 - 13:54 | 4910355 Watson
Watson's picture

>>>
...1.25% surge...
<<<

'1.25%' and 'surge' do not belong in the same sentence, unless you are trying to peddle a securities position...

Please remember copper was over USD 4 a few years ago...so a 25% fall since then.

FWIW, the continuous contract data seems to show:
1. Traded flat below USD 1(!) for many years until 2004;
2. Steady climb to USD 2 until 2006, then blow-out to USD 4;
3. Then wild (somes very wild) movements until the present, which I put down to an asset that wants to fall, but cuts in interest rates keep tempting people in (bit like the bond market really).

I think copper will see USD 2 again...

Watson

Mon, 06/30/2014 - 14:08 | 4910411 lunaticfringe
lunaticfringe's picture

I have over 300 pounds of copper all minted prior to 1982. It is not for sale.

Mon, 06/30/2014 - 16:56 | 4911273 mastersnark
mastersnark's picture

Neat. My cat's name is Mittens. His breath smells like cat food.

Mon, 06/30/2014 - 17:48 | 4911480 Ghostdog
Ghostdog's picture

Quick whats an anagram for Alec Guinness or.....  Jeremy Irons

Mon, 06/30/2014 - 15:38 | 4910934 darteaus
darteaus's picture

Copper: The poor man's / industrialist's silver.

Better to have a ton of copper than a pile of paper, if, indeed, that ton exists and belongs to you.

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