Financial Sense Home l Broadcast l WrapUp l Storm Watch l About Us l Contact Us
|
Copper and Oil are
Partners in the Same Dance The story behind the large base and precious metals price decline one day a couple of weeks ago appears to be even more of an aberration than I suspected, and the real explanation (lost among other stories) is based on facts that don't make sense. Seems that Chinese use of copper dropped 21% in July compared to the prior July as reported by the International Copper Study Group in Europe (http://www.icsg.org/), although no such report is on their Web site at last check. That's not over the year, but one July number compared to the next July number. That's a disastrous decline, but it's just a 30-day snapshot explained by 1) error and/or 2) delivery bottlenecks, and/or 3) complications in production from repeated power grid failures. And, this news was just the second day after a copper price spike attributed to short traders throwing in the towel. Getting the speculators out of the way and pushing down the price is a ploy used by very big money to enter a market at a lower price. Market manipulators don't see the people behind the numbers, they just like to exercise their influence to reap bigger returns. Sometimes, that to help provide stockpiles against further price advances they judge to be ahead for the market. In fact, there was some evidence of that fact out of China itself on the heels of this latest correct according to Robin Bahr, a base metals analyst for Standard Bank, London. He also says a correction in prices of 10 or 20 percent would have to be sustain for the trend to be broken. That has not happened, and it's not likely to happen. In fact, copper and other base metals have eased to higher prices since that dramatic decline earlier in the month. More to the point, China consumes a fifth of the world's copper output, and their rate of off take is increasing at one-half to one full percentage point per year. That is, consumption will be up about 8.5 percent this year compared to last, and should be up another 9-10 percent next year, according to analysts. Therefore, and contrary to many expectations, China's economy is not shutting down, it's roaring ahead. Certainly, there is little sign of a general slowing in consumption of raw materials. Even if the July number is a good number for copper in that 30-day period, it can not reflect anything like what the market reaction suggested. In reality, DEMAND is not off, although copper USAGE may have been in that 30-day window. Watch this turn out to be like when oil dipped back into low 40's early last month. People thought the outrageous prices were finally going back to "sensible?" levels. What happened? We continue to set new record high prices. Copper (and other base metals) and oil are partners in the same dance, and the band has only just started playing. Hang in there. Nothing's changed. Keep your eye on the trend and don't be shaken by isolated events. THE
CHINA SYNDROME: 13/10/2004
- Despite recent reports from some quarters, copper demand in China is
not slowing. 13/10/2004
- Chinese domestic demand for air conditioners fuels the copper boom.
(And what about widening the electrical grid required to run them?) 14/10/2004
- And while some think efforts are being made to slow growth, the
Chinese economy continues booming. Note the stated concerns about inflation. As I indicated last time, inflation does not have to be a bad thing domestically for any country. As long as wages and other internal offsets exist, it can be neutral-to-positive for growth. Of course, if that inflation is exported, it can be damaging to other countries where similar offsets do not exit. That's what the world is facing today from the rapid growth in India and China. "According to Dow Jones total overseas direct investment by Chinese firms rose 5.5% year on year to US$2.85 billion in 2003. Foreign investment into China in 2003 was US$53.5 billion." 19/10/2004
- "It's a good time to invest..." in copper, says BHP chief. 22/10/2004
- China's GDP growth officially eases slightly, as does the CPI., but
... "Other data showed the economy is still booming. China's fixed-asset investment -- which accounts for about half of GDP -- rose 27.7 percent in the January-September period, and industrial production rose 17 percent." This means, of course, there is no slowing in the demand for raw materials. Quotes from Selected Readings: "Like Britain a century ago, the United States has greatly over-borrowed in an effort to control access to the world's energy supply and at the same keep its domestic economy firing on all cylinders. As competition for diminishing oil resources threatens U.S. dollar hegemony over world oil transactions, expect to see increased Chinese political and military presence in the Middle East. The presence of Chinese PLA troops in Sudan, in our opinion, marks the middle kingdom's entrance into the great game. China's next move could come in the form of massive dollar devaluation when they decide to unload their supply of accumulated greenbacks. China just recently released six billion of those greenbacks for its purchase of Noranda Mining -- Canada's biggest mining company. Keep your eyes open for stepped-up greenback dumping by China in exchange for natural resources such as oil-bearing properties or perhaps more mines. We predict that in the near future, Saudi princes will decide to denominate some of their oil transactions in Yuan (or at least something other than dollars) and invest their profits into shares of China Mobile or PetroChina instead of Citigroup." Todd Stein & Steven McIntyre, The Texas Hedge Report, 10-15-2004. OFF TOPIC: Here's a link to a shockingly frank Dutch produced documentary, The Brooklyn Connection, detailing the raising of money for John Kerry and insurrection in Kosovo by ethnic Albanian/Muslim rebels. Kosovo, you will recall, has been a province/protectorate of Serbia for hundreds of years, and was until recent times dominated in population by ethnic Serbs. It is their Holy Ground containing their most ancient churches, and sacred battlefields in wars against the Turks. Control of the area was taken by NATO in the war against Serbia under the pretext of intervening against a genocide that never happened. The film is 50-minutes long, and largely in English (after the first five minutes). http://www.vpro.nl/programma/tegenlicht/afleveringen/18793157/ Click one of the two "film" logos at the upper right of the Web page. (Thanks, Melana.) And,
in related editorials. Some thoughts: In
the long run, escalating trade deficits always result in severe economic
adjustments. End
legal tender laws. End government debt as an "asset"
for reserve banking. End the Federal Reserve System. "The
study of money, above all other fields in economics,
|
|
Contact
Information |
Larry S. Levy is editor of Arts 'n Mines, a private email newsletter for special friends, guests and selected industry insiders. It is not available to the public. EXTRACTS is compiled from portions of the newsletter not dealing with specific mining issues. Mr. Levy also contributes economic and historical commentary on these subjects to international publications. He is retired from his former practice as a property valuations expert, during which time he held leadership roles in the premiere trade associations, lectured, and published articles on valuation topics. |