Friday, November 12, 2010

Copper is the new oil



The global market, that hysterical mob by which we price our lives, is tracing out its new bubble.

In 2007 and 2008 it was oil that led the fever of emerging market demand, extrapolations of endless Chinese demand, supply shortages, dark hints of peak reserves and, most importantly, rampant speculative buying. This time its copper.

As this blogger wrote some weeks ago based upon a fabulous piece in Der Speigel, believe in current pricing at your peril. The above chart is from the Der Speigel piece and tells the story of a market decoupled from any economic reality. This blogger strongly recommends you read the whole story.

If we take a look at some other charts, the story is equally clear. First, the five year copper price chart:



Then over lay that with five year inventory charts for the three main exchanges pertaining to copper. First the LME:



Next is New York COMEX:



Finally, Shanghai Futures Exchange:



Although falling, inventories are much higher than they were throughout commodity boom mark one. There are other factors, like unknown levels of hoarding all over the place, including Chinese pig farmers, but the trends are still not supportive of the current price.

Has there been a shortage of supply coming into the market? Not according to the US geological survey:



Nor, according to ABARE, is there any great imbalance in future supply:



There is no fundamental justification for the blowoff in copper. Only some monetary support from a $US under pressure from a mooted round of QEII.

This blogger doesn't know when this bubble will burst. It could double again for all it knows. But three giant pins remain poised: European debt woes, US housing and a coming trade war. This blogger's money is on sooner rather than later.

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