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Economically Key Industrial Metals Complex Is Breaking Down
On March 5, we noted that the S&P GSCI Industrial Metals Index was “Hanging On The Precipice” of a major long-term support level. At the time, the global deflationary spiral was reaching its nadir as all matters of commodities and pricing metrics were reaching multi-year lows. Not coincidentally, the U.S. Dollar was soaring at the time to new 12-year highs. The concern with the Industrial Metals space threatening to break down was the inherent message vis-a-vis the global economic outlook. As we stated in the March post:
It makes sense that pricing of industrial metals (like aluminum, copper, nickel, zinc, etc.) would make for a decent barometer of economic strength. These metals go into the manufacturing of a myriad of products. Thus, their pricing, i.e., a sign of the level of demand for these metals, is a tip off to the level of global economic demand present.
The failure of the Industrial Metals complex to hold key support would appear, to us, to bode ill for the global economic outlook. The key support level threatening to give way was the 61.8% Fibonacci Retracement (near 307) of the rally from 2009 to 2011 to which the Index had recently dropped. That level, at the time, had held for several days, confirming its relevance, and perhaps significance, as a support level.
We had seen the price of crude oil as well as the comprehensive CRB commodity Index break their own such 61.8% Fibonacci levels en route to major collapses. However, we also saw copper hold its similar level so it appeared that the Industrial Metals could go either way. Considering the lack of any bounce at all off of the 61.8% level, the chart had the looks of a continuation pattern. Thus, our suspicions were that the index would eventually break down. Well, our suspicions were correct…for 1 day. On March 18, the Index appeared to be breaking down, only to reverse itself the following day and commence a furious rally over the subsequent 6 weeks. After jumping some 13%, the Industrial Metals Index tested its previous break-down level from December near 345 – and failed.
Over the past 6 weeks, the Industrial Metals Index has gotten pummeled, losing its entire post-”false breakdown” gains. It has returned to the key 61.8% support level around 307 and, this time, it is threatening to slice through it.
The fact that the Index has dropped immediately to new 6-year lows is a concern. One would expect prices to at least be temporarily slowed by the prior lows. The failure to do that suggests a dearth of demand at this formerly key level. That said, prices could certainly be setting up another false breakdown. If the index is able to recapture that 307 line in short-order, that possibility cannot be overlooked. That could further lead to the potential of this down move being a successful test of the March lows. Thus, all of this action near the 61.8% line could just be a complex bottoming process. Furthermore, and we are looking well ahead here, if such a successful test leads to a rally above the May highs, it could signify a potentially major long-term low in the Industrial Metals complex.
However, that is merely the “could be”. We prefer to deal with the “what is”. And what is happening is that the Industrial Metals Index is breaking down below the key 61.8% Fibonacci Retracement of the 2009-2011 rally. Further breakdown in prices could, again, be a sign of global economic weakness. And perhaps arguing for a further breakdown in prices is the recent action in the U.S. Dollar.
Interestingly, in March, when the Industrial Metals Index was last breaking down, it was doing so in the face of a soaring dollar. That is not the case now. In fact, since the Index peaked in early May, the U.S. Dollar is actually lower by about 1.5%. Therefore, we can’t merely look at this as an anti-dollar move. It has come of its own accord, without the headwinds of a U.S. Dollar rally. If the Dollar were to rally, it’s possible we could see a significant acceleration of this plunge in the Industrial Metals.
For now, we’ll just focus on that 307 level. Above it, the Index has a chance to rally. Below it, it could be bombs away. Right now, we are below it. Therefore, we will continue to look for more downside in the Industrial Metals. And that downside could mean more than just losses in this space – it could be a warning sign for global economic demand.
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"Could be" a warning sign....?
The wheels are coming off this train wreck as we speak...
Industrial Metals Complex Is Breaking Down
Proving you can do damn near anything with a little hot QE cash.
Print money...own the world.
True, but metals really aren't where the money is going, that's just a hot swap position for most of the banks, e.g. silver for JP Morgan, and I believe what the wealthy are deeply invested in is ultilities, energy, and any other assets that produce consumable neccessary products... (Like food etc..)
(They bought silver only with the intent of selling massive derrivatives, but if nobody ends up buying they could get bent over hard, and I doubt that will be the case when people start to see the markets tanking again, they'll fly to precious metals with fervor, where the foxes will be smiling & counting their new "dividends"...)
The wheels are coming off this train wreck as we speak...
The wheels fell off a long time ago. This is just the super slow motion train wreak. It still has a ways to go though, IMO.
Yes, of course, by the time you go to the store and the shelves a bare, it will be too late.
A little thing we like to call.....3 card monte.
This report caught my eye over at Wolf Street: http://wolfstreet.com/2015/06/22/container-shipping-rates-from-china-to-...
Bwah, dr. copper told us this story already, and a few of us, who are even capable of looking at Baltic Dry Index, knew anyways ...
problem is we are not manufacturing enough weapons and ammunition and bombs and rockets and tanks and aircraft carriers and, and... ad nauseum
On a long enough timeline, we all hit the X-Axis.
How long is that long enough time? We were supposed to stay close to the x-axis? Didn't we all know?
http://just-a-thought-from-thinair.blogspot.com/
Maybe reduced demand for metals means something, maybe not.
Next time you buy a new car, look at how much of it is plastic, and how light it is...
Fact is, we've engineered our way around a lot of metals.
Somebody went so insane as to make bumpers and radiators out of plastic, more proof the world has gone to hell and is NOT sustainable.
I've had one accident in 30 years of driving, lightly touching one of those plastic bumpers on a Toyota pickup while gazing into my hand for change while approaching a toll booth.
Huge dent in the plastic. They are made to absorb the shock, but required total replacement once the damage is done.
I've had one accident in 30 years of driving, lightly touching one of those plastic bumpers on a Toyota pickup while gazing into my hand for change while approaching a toll booth.
Huge dent in the plastic. They are made to absorb the shock, but required total replacement once the damage is done.
Just how light a new vehicle is... not very considering the #1 sales vehicles, in the US.
Boomers on average continue to want big something and often several, no not just cankle or chinkle.
No worries, the lots are full and over flowing soon to the recycling bin.
Yes, yes, carbon fiber is awesome. I wonder if you can eat it?
Define "industry"...
Now remind me, what real fucking product do all those bankers and financiers in the "financial industry" actually produce again? They must produce something, because that is where all the compensation has been going motherfucker.
get long sharecropping, black markets and guillotines, beat the rush.
You of all people have to ask what these suckers produce? They produce credit, which means debt! As if you didn't know ...
Yes, in other words, they are only valuable for one thing, compost.
You mean to tell me that the economy (physical demand) never truly recovered to pre-crisis levels and all the prices were manipulated through their financially settled contracts with no exchange in product. Color me fucking shocked.
physical demand for what, details matter. With 7+ billion people (and growing) all competing for a higher standard of living, the demand for all the resources that make that higher standard of living possible has never been higher.
Demand for plastic crap, electronic toys, and bullshit financial "products"... ...not so much.
What we are finding is the consumption of goods that require these metals/minerals is quite low compared to the population growth. Food on the other hand...well food that isn't radioactive or full of heavy metals, is very much in demand. FYI, the TPP could force us to import Japanense radioactive tainted food as they would sue us for having too "high standards" on our food quality.
I say again: the default risk being priced in to these extremely low rates is simply beyond belief.
Everything has rolled over including Detroit and now the riots are spreading across the country.
Obviously it's the fault of the Confederate Flag and "white people" but I also think "serious people who are otherwise completely retarded" ought to take note too.
The bankster BS recovery.
It doesn't matter, there's a 99.99% chance of QE4 so the banksters can feast on more saver's money.
please, who needs "savers" when you can access all the money you want for free (ZIRP)!!!!
This doesn't prove anything. buybuybuybuybuybuybuybuybuybuybuybuybuybuybuybuy /s
China bought up every boatload of metal Australia could mine and every scrap iron chunk the USA could crush. They collected a strategic reserve of cheap metal when their fiat was over-priced and pegged to the overvalued U$D.
What did the USA stockpile when it was fiat-flush? Nada.
The rehypo seen in Chinese metal warehouses and "elsewhere" shows the boom is heading toward the bust, deja vu all over again.
The fact that recyclers and scrap dealers are hurting per recent news articles shows there is genuine reduced demand.
Dr. Copper got his schoolin' from Maw Copper, scrap copper prices which is the next-to-new metal component you'd buy before you paid full price for "new" copper.
http://www.bigdaddyscrap.com/prices.html - Note: electric motors = $.15/ lb - is so low due to labor cost to unwind the copper coils. If you do the labor in your copious spare time, price is +10X higher for the copper.
One thing people do not recognize is that the primary bubble and collapse has been in commodities. Housing (the previous bubble) and Stocks (two previous bubble ago) are secondary effects.
One has to wonder if this is an attack on China.
I recall the collapse of the Nikkei. It was either late 80s or early 90s. It was after about 2 decades of Japanese manufacturing expansion and power, which was initially fueled by low cost labor. The low cost labor later morphed into higher technology and automation and the Japanese were proclaimed a geniuses and the new manufacturing power of the century. As costs got expensive in Japan and their mark--to-market valuations (which formed the basis of their borrowing collateral) reached pinnacle ... they extended themselves to buying properties at premium prices all over the world, they were suddenly hit with a collapse of the Nikkei and a devaluation of their collateral assets. A couple of "lost decades" followed.
China seems to be, or have similarly been, dependent on low cost labor and collateral assets, especially commodities.
Time will tell what the result will be and who is pulling the strings.