Zero Hedge wonders if there is a copper bubble

"Cornelius" offers four scenarios, which he rebuts:
1) The government is stockpiling vast amounts to store value in commodities and/or taking advantage of historic lows to build up reserves while the getting is good
2. China is an economic powerhouse (unlike us capitalist dogs), and despite being a largely export-driven economy, is putting up great production numbers in the face of the worst international collapse in 70 years and needs the copper to fuel the machine
3. Chinese scrap is getting harder to find/salvage/produce/refine, etc.
4. The SHFE and LME spread copper arb trade
Though I agree that copper prices are probably artificially elevated, two additional explanations I've mentioned are an asset backed currency or dollar hedge.

Although still viewed as a "currency manipulator" by politicians and other ignoramuses, China continues on the path of yuan reform, moving closer towards full convertibility. There are some economists who believe the yuan may be overvalued, or at least could be open to hot money outflows. The simplest of these is the argument that since there are much greater currency restrictions on outflows, it's possible that when the yuan becomes fully convertible, pent up domestic demand for foreign assets, real estate, and currency, plus foreign desire to repatriate assets, would cause a drop in the yuan. If China sold dollars to prop up the yuan, it would be putting all of the pain squarely on its exporters. If instead it uses hard assets reserve to reduce imports, it can indirectly support the yuan.

The Chinese also view themselves as the future center of global economic activity, and that will lead to the displacement of the dollar as the world's reserve currency. Copper was a major source of coinage in China from ancient times up until the modern period. If China suddenly loaded up on gold or silver, everyone would know what it was doing, but copper buying is opaque. As Cornelius writes in his rebuttal of theory one: There is also a minor quibble that if it were true, one would think China would be a little more subtle about it's buying and play the market structure a bit better - though the sheer volume hinders that to some degree. Given the size of their reserves, China cannot hide a switch between asset classes, but it can camouflage monetary policy as industrial policy. When you can't hide your actions, you hide your intentions.

Even if their goal is not a hard currency in and of itself, they may be using commodities as a hedge against dollar depreciation. W Joseph Stroupe argues that China already has amassed enough assets, hidden from official statistics, to reduce their dollar risk to 50% of assets. Backing a currency with inflated paper reserves will cause the currency itself to inflate. China anticipates higher natural resource demand; it makes sense for China to swap its currently overvalued paper for currently undervalued natural resources, if for no other reason than it is a good deal. That it also provides the option to prop up the currency or subsidize the industrial sector is a bonus.

The above speculation aside, Occam's Razor says that unless the buying becomes excessive, Cornelius is correct. When China's satisfies its need, demand will fade and copper prices will fall——assuming no economic recovery.

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