Within the last week China appears to have hit the panic button with regards the seemingly unstoppable collapse of commodity prices. First, desperate Chinese producers began to demand a QE-for-commodities bailout [9]; then, following the well-trodden (and failing) path of China's equity market maipulation, authorities began to crackdown on "malicious" commodity short-sellers. So why now? Why focus attention on the commodity markets? Perhaps this chart holds the key...
Having suddenly lost control of the stock market again...
[10]
Maybe commodities are a renewed focus as, we showed earlier in the week, there is "No End In Sight For Commodity Carnage As Chinese Fear Fed Hike Blowback [11]", a post which can be summarized with the following chart showing that at least for nickel, copper, zinc, iron ore and aluminum it will be a very unhappy holiday season:
[12]
The one-word reason for this condition, as we explained here [9]: China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters - the commodity space.
Which led to demands for a bailout... [9]
That joke has become a reality according to Reuters [13], which reports that China's aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.
And a crackdown on speculators [14](the selling ones, not the buying ones)...
So as a plan B, the same metals industry group that is reeling and understands it is one foot in the grave unless commodity prices pick up and which earlier this week demanded a government bailout, or "QEmmodity" soaking up all excess production, has doubled down and according to Bloomberg [15]the China Nonferrous Metals Industry Association has submitted a request to Chinese regulators to probe "malicious" short-selling in domestic metal contracts amid recent price declines.
What is even more insane, is that China will do just that, in the process breaking what little is left of a domestic commodity market next.
Regulators have begun to collect some records of trading activity following a request from the China Nonferrous Metals Industry Association, according to the people, who asked not to be identified because they aren’t authorized to speak publicly on the matter. Nobody answered calls to the industry association’s general office.
Remember: it is always the "malicious" sellers who are the cause of all the world's problems, never the "malicious" buyers, especially when said buyers are the central banks themselves.
* * *
So why now? Why all of a sudden pay attention to what until now has been a never-ending collapse across all commodities...
[12]
Well perhaps we have the answer... For thre first time since the commodity super-cycle began (read credit-fueled malinvestment mania), copper prices are set to close below the critical 200-month moving average.
The last time copper prices crossed this historical level was in 2008/9 and QE was immediately unleashed to reflate that bubble back to some state of debt-supporting fallacy...
[16]
On that occasion, the metal rallied hard at month-end to close above.
As Bloomberg notes, LME copper 3-mo rolling forward, currently trading at 4626, needs to rally 9% by Nov. 30 close to finish above 200-MMA, at ~5055, to avoid bearish technical signal.
However, some analysts say it is the 233-MMA, linked to the Fibonacci number 233 and currently at ~4610, that may be the more important support to watch, and which looks likely to hold.
And as if to runb more salt in the wounds, very recent Chinese data has not been bullish for copper as demand for use in appliances falls 4.6% y/y in October.
* * *
So are the momentum-chasing Chinese hitting the panic button on copper (and other metals) because the last level of price support is about to break exposing an entire nation's growth fallacy to the world? Who knows... but it will certainly indicate yet again just how omnipotent central planners are (or are not).
