2014-05-19

Hope Refuses to Die

The surge in copper prices is a big mark against the China slowdown scenario, but the recent price rise has been driven by declining inventory on the exchanges, not an increase in final demand.

China Spot Copper Premium Surges as Supply Cut
Chinese smelters are hoarding the metal in bonded warehouses in an attempt to drive up the local price against the rate in London and sell it abroad at a profit, according to SMM Information & Technology Co. At the same time, local traders have locked up as much as 1 million metric tons as collateral to get credit for other investments, Goldman Sachs Group Inc. said on March 18.

......A higher premium in Shanghai, the hub of China’s base metal physical and futures trading, could support domestic prices against the London Metal Exchange price. Chinese smelters, who import copper concentrate based on London prices, lose money when Shanghai prices are at a discount to the LME.

Copper hits 11 week high on tight supply
London copper hit its highest in 11 weeks on Monday as China pledged to quicken the pace of financial reform, supporting growth in demand for commodities as global exchange supplies of the metal dry up.

......China will try to quicken the pace of economic reform this year as part of the government's efforts to arrest a slowdown in the world's second-largest economy, the country's top economic planning agency said late on Saturday.
Faster reform means faster rebalancing away from resource intensive development and there are no signs of a stimulus. The market may be right and the fears of a slowdown overblown, but if the rally is mainly based on hope for stimulus and Chinese maneuvers to elevate copper prices, the result is going to be another collapse in prices.

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