Sunday, April 5, 2009

Copper demand outlook in the short term

Tyler and I are thinking of redoing the 4th floor at ZH headquarters and to figure out when to do it, we were looking at copper futures on COMX (which is what normal people do... right?)

Below is a chart for a HG N9 contract (high grade copper for delivery on July 2009, which is one of the more liquid contracts currently out there):

The price of copper has largely followed the trajectory of many other markets. As we stated, we don't think we are close to the bottom (despite the recent equity rally) but copper looks susceptible to a particularly sharp correction as equity and commercial real estate numbers worsen. With real estate (new construction) looking to get worse before it gets better and electronics of all kinds seeing almost universal demand pressures, it's tough to see any major upside. The only potential savior is China going ahead with expansion in the face of a terrible export outlook and its reserves getting spanked by the dollar; not the most bankable sentiment.
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Central Bunk said...

What about the massive investments happening in power grid infrastructure around the World?
China and most of North America are modernizing their power grids.

Advant Guard said...

The entire up tick in copper prices is the result of China stockpiling copper as part of its stimulus. No body else is buying in any quantity. I am not sure at what point they will stop (3 years supply; 5 years supply) but when they do stop they won't be buying copper for the foreseeable future.

To see what that looks like gaze upon the oil price chart for last year as China stockpiled oil and diesel in anticipation of the Olympics and then on July 16, they just stop buying.

Of course, they have two trillion dollars of currency reserves that they are no longer comfortable with and that buys you a lot of copper (and gold and crude oil.)

Anonymous said...


What about the supply side?? China buying into Rio Tinto, etc...?

Porter Wagoner said...

Great work!

Cornelius said...

All the comments are correct to some degree, it's really a matter of timing. This post was mostly on the outlook over the next few weeks as various earnings reports and further data gets released. The Chinese stockpile theory will kick in likely over the medium term and the infrastructure flows will come much later in the year.

Anonymous said...

ChristyACB said...

Does this mean it will finally be affordable again to buy that set of dreamy hand-made copper cookware?

John said...

I'll agree that copper is expensive given the current conditions in the marketplace. I'll also agree when the time comes that it will correct sharply, LME stockpiles are at their highest in years by like 5 fold.

However, given that we're in a technical/momentum driven market taking a short position would seem premature. 2 dollars is a psychological threshold, but look back years and you'll see the intial breakout occured from 2-2.25, the subprime selloff (NFC blackhole), only managed to pull the price down to 2.50 (next likely technical resistance point if prices above 2 dollars can be sustained).

Another 50 cent rise is about -12k per contract... margin is only what 8k? Sounds expensive if you're early.

I don't see copper turning until the equity rally fizzles. That rally can go on for a while. I think that the equity rally will continue until the fed has bought all the treasuries they need, Pimpco has bought corp bonds, pension funds start getting back in etc. Then it'll turn when the Fed starts to shrink their holdings and drive everyone else running for cover. Then they'll win the treasury game too.

Cornelius said...

John, you make a good point on the technicals. I use technicals on my personal trades, but don't cover them at all for ZH. I also disagree with you on the equity rally - the factors aren't going to be as macro as you are describing.

John said...

Cornelius, you're correct there isn't a really solid reason for a rally to be sustained but it can't be totally ruled out.

Here's the 1930 bear:

That is a massive rally, well over 50%, from 200 to 298. We're in the middle of a 25% rally what if that extends to 10000 DJI?

I certainly don't think there is any news at all or report in the world that would warrant it, but I'm not ready to short anything until it's easier.

BTW, I'm hooked on the blog, thanks for posting.

John said...

Oh and I'm totally willing to change my mind in an instant so I'm not totally gungho on this idea, I'm just not ready to rule it out.

Anonymous said...

bdi down 17 days in a row and over 30%...copper won't be far behind.

ill also say

china = great depression II

Anonymous said...


NYT is reporting that the G20 intend to keep protecting bank bondholders.

Anonymous said...


anon @ 12:47 am.

"china = great depression II"?
Have you been there in the last 2-3 months? Peter Schiff is reporting differently in his weekly video: (password = GOLD)

China has 1.3 billion local consumers who do not use credit and NEVER declare bankrupcy. Cash is king. Those of us with an inside view of China will tell you that China is in much better shape than the US.

Thanks for the heads up on Copper Corney. I may grab a handful of shorts on this one and see where it goes. If it's anything like your currency calls it'll be a winner.

Daniel Plainview said...

Pair trade; short Copper long wheat/corn.

That will be winner no matter who wins: inflation/deflation.

Anonymous said...

> Pair trade; short Copper long wheat/corn.

i can short copper, long wheat just by holding pre-1959 pennies and turning them upside down