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Copper Halted After Crashing 8% On LME, Sends AUD Plunging, Futures Dip Under 2000

Tyler Durden's picture




 

Today's prime time event hasn't even arrived, that would be the European Court of Justice (ECJ) delivering its final opinion on the legality of the ECB’s previously announced OMT program, in less than an hour, and already the fireworks have begun, most notably out of Asia where after yesterday's epic commodity drubbing many were caught with their pants down and margin calls up, and what followed was a classic liquidation puke, when Copper prices crashed over 8% on the LME, to fresh 5 year lows and below USD 5,500/T in London.

This plunge prompted Shanghai futures to hit a daily-trading limit, while copper COMEX also dropped to a five and a half year low. According to traders, the sell-off was sparked by stop-loss selling as the World Bank downgraded global growth and amid expectations of increasing supply. Adding gasoline, so to say, to the excess capacity fire, Goldman said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices. Oh, and before you blame the selloff on another OPEC-driven supply glut, here is the real culprit according to Goldman:

  • GOLDMAN SAYS RISKS TO COPPER PRICE HEAVILY SKEWED TO DOWNSIDE
  • GOLDMAN EXPECTS CONTINUED DEMAND WEAKNESS IN CHINA

Yes: it is, sadly for the apologists, all about China, whose credit creation dynamo has all but run dry. Worse, with copper the primary funding metal of its shadow banking system (read The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"? and Bronze Swan Lands: Goldman Explains How The China Commodity Unwind Will Happen) things in China are about to get very interesting.

Here is a blow by blow of the copper crash from RanSquawk:

The sharp move lower in copper was initially attributed to stop-loss selling and a surge in trading volumes.

  • The World Bank then cut its 2015 Global growth forecast to 3% from 3.4% sending prices further lower.
  • In response, Goldman Sachs said risks to copper prices are heavily skewed to downside and a Q1 rise in LME and SHFE inventory is to weigh on prices.
  • In tandem with the copper weakness, commodity-related currencies including NZD, AUD and CAD came under selling pressure, notably against JPY.
  • Of note, yesterday BNP Paribas cut 2015 copper forecast to USD 6,175 from USD 6,500 per tonne.  Elsewhere, Deutsche Bank head of commodity research said short positions in copper are now at multi-year highs in the face of oil weakness.
  • The negative sentiment also comes ahead recent heightened expectations of increasing copper supply. Yesterday,  Peru (world's third largest copper producer) finance minister Segura sees very strong copper output on new mines, output to rise through 2018

This also comes after LME Warehouse Stock Movements showed copper stockpiles rise 2.1% to highest since May.

The copper crash has also impacted adversely all commodity currencies, and NZD, CAD but mostly AUD all fell against all major peers. Here is the AUDJPY tumbling to the lowest since October.

The flight from, well, all commodities was also evident in JPY crosses after the USD/JPY tumbled below 117, the lowest since December 17, dragging the E-mini lower with it.

And now we sit back and see if Draghi's "whatever it takes" OMT has been deemed illegal, or, instead, if the ECJ finds it legal and begins a full blown political war with Germany.

 

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Wed, 01/14/2015 - 05:00 | 5659049 AbbeBrel
AbbeBrel's picture

Humm yessiree Dr. Copper was holding sort of steady in 2015, but seems to be suffering from a bad bout of "Disinflation" (love that word, when you CANNOT say "Deflation"!!)

 

http://stockcharts.com/h-sc/ui?s=%24copper

 

for more on the semantics of these words, see the SanFran fed - the words actually make sense (check the Chart to 1999 of the CPI to look at the good old days).

http://www.frbsf.org/education/publications/doctor-econ/1999/september/d...

Wed, 01/14/2015 - 06:12 | 5659121 NidStyles
NidStyles's picture

It's not deflation if the asset was in a bubble.

Wed, 01/14/2015 - 08:21 | 5659277 MalteseFalcon
MalteseFalcon's picture

Copper is just another bubbled up commoditiy.  Unless you are directly invested in the commodity, the bubble bursting is a non-issue.

While this bubble deflates, another is being pumped up.

Net-net no big deal.

And that definitely includes oil.

Wed, 01/14/2015 - 08:25 | 5659286 Bloppy
Bloppy's picture

Of course the PPTers are busy levitating S&P futures but it still feels crash-y out there today

 

Boston.com (Boston Globe-owned site) on Boehner poison plot: 'perhaps his pickled liver could have filtered out the toxins':

http://tinyurl.com/o8gse84

 

Wed, 01/14/2015 - 04:50 | 5659055 NMFP
NMFP's picture

Off Topic The Guardian News Feed

 

The judges have decided that the OMT bond-buying programme would be compatible with EU treaties, as long as the central bank does not distort the markets:

Wed, 01/14/2015 - 04:55 | 5659064 Sirius Wonderblast
Sirius Wonderblast's picture

But isn't that the whole point of it?

Wed, 01/14/2015 - 04:58 | 5659066 ebworthen
ebworthen's picture

ROFLMAO!  No way!  I would say "unbelievable" but it is believable.

"Nope, no distortion here."  STFU!  What!?!?

Wed, 01/14/2015 - 06:22 | 5659128 new game
new game's picture

these central bankers are  the enemy. the enemy, period.

now, if you are getting the rewards via a check for nothing, well happy days go on for ????

are you a parasite or pulling the wagon, hmmm.

time to look seriously at what Karl Marx had to say...

commodities signaling a liquidity crisses worldwide, end of story. plan for a downdraft of flight to cash, and i'll say it, fucking debt, bonds, paper denominated crap to keep the shit train rolling; almost as planned by the above mention enemy...

ha-fauckingha, so  nice, and happy day to you, thank you...

Wed, 01/14/2015 - 08:07 | 5659260 savagegoose
savagegoose's picture

what implications for gold price?

 

Wed, 01/14/2015 - 04:55 | 5659059 bustdrs
bustdrs's picture

Faark. Where'd all that stimulus go?
"As long as the central bank does not distort markets"
They're doing there best! If they give it any more the whole things gonna blow!
Bullish.

Wed, 01/14/2015 - 04:54 | 5659060 ebworthen
ebworthen's picture

Woops!

What's that copper used for anyway, that newfangled elec-tricity and piping water instead of carrying a bucket?

Wed, 01/14/2015 - 05:33 | 5659098 css1971
css1971's picture

Steel, zinc and aluminium are also good for corroboration.

Wed, 01/14/2015 - 04:56 | 5659063 Which is worse ...
Which is worse - bankers or terrorists's picture

AUDUSD just roundtripped to 2010. 

Wed, 01/14/2015 - 05:09 | 5659073 AbbeBrel
AbbeBrel's picture

If the Dr. gets hammered back down to the median price of about a buck  - that trip to the Great Barrier Reef might get pretty cheap in USD.   See prices back to 1988:

 

 

http://www.worldresourcesforum.org/files/file/copper_chart.png

Wed, 01/14/2015 - 05:34 | 5659099 AmarUtu
AmarUtu's picture

You better hurry as the corporate government wants to cover the reef in dirt so they can ship their coal to the non-existent chinese market.

Wed, 01/14/2015 - 05:32 | 5659096 css1971
css1971's picture

Whoops.

TSIATHTF!

Wed, 01/14/2015 - 05:37 | 5659100 Rusty Shorts
Rusty Shorts's picture

Phew, thank god i invested heavily in Bitcoin! Cheers!!!

Wed, 01/14/2015 - 05:50 | 5659105 Quinvarius
Quinvarius's picture

Dr Copper: "I am sorry, son.  It has metastasized.  There is nothing we can do.  You have 3 months to live.  We have contacted the Make A Wish Foundation at CNBC on your behalf."

Wed, 01/14/2015 - 07:43 | 5659215 Supernova Born
Supernova Born's picture

"Your fantasy fortnight with Jim Cramer and Steve Liesman in a beachfront cabana on the Caribbean is just days away."

Wed, 01/14/2015 - 07:04 | 5659173 Oldwood
Oldwood's picture

Does this mean my penny jar is worth even less now than yesterday?! There goes my retirement....

Wed, 01/14/2015 - 07:24 | 5659195 El Hosel
El Hosel's picture

GOLDMAN SAYS  COPPER PRICE HEAVILY SCREWED TO DOWNSIDE

Dr Copper fell off the wall, central bankers behind the eight ball , all the kings horses and all the kings men, bend over boys here it comes again.

Wed, 01/14/2015 - 07:44 | 5659219 oudinot
oudinot's picture

Although the news is bad for copper producers, don't forget that energy is about 30% of producer's mining cost......deflation, baby!! 

Wed, 01/14/2015 - 07:58 | 5659244 Oldwood
Oldwood's picture

I'm sure those who fund these operations will in no way be deterred from extending more credit to produce a commodity experiencing "off the cliff " price declines, especially given these same money people are also backing the shale oil plays. Nope, I see no problem there at all.

When the economy is completely driven by credit, any loss of confidence, any threat to that credit, will blow back through the entire world economy. Are we forgetting how a 5% default rate on mortgages ravaged our economy just a short time ago?

The only stable economy is an economy that has minimal debt....which of course will not be allowed to happen as the only way the gamblers, freeloaders and those unwilling to work for a living to make bug bucks is through debt AND market instabilities. Does anyone here think that there are not some making a huge killing from our current volatility?

Making a killing through chaos.....

Wed, 01/14/2015 - 08:04 | 5659257 overmedicatedun...
overmedicatedundersexed's picture

oldwood you ol geezer..get with it this is the new economy: virtual cooper and oil are now used in virtual economies all experienced thru your internet. phyz not required as we all plug in to the matrix.

Wed, 01/14/2015 - 08:38 | 5659226 oudinot
oudinot's picture

Dr. Copper fell off the wall,

Causing CB's policies to come to a stall,

All the oligarch's men and all the NSA,

Could not make their crazy policy pay.

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