Pessimism in the Metals

Economic Observer: 2015，大宗商品的“第二场雪” Commodities Second Bear Market

In addition, SW metals research group also pointed out that the industry chain is the root cause oversupply of copper prices. In particular, concentrate adequate supply of Chinese smelting capacity continues to grow.

Following the oil, iron ore, copper prices fell after this crash, the market once again filled with pessimism.

After copper prices plunged, professional investors, then the author said Huang, copper and iron ore prices, "avalanche" could advance reflects the Chinese real estate market slump coming, so the next real estate market prices may also declined.

....Current market concern is that in this round of commodity prices falling like dominoes, the next crash will drop breed who is?

谢国忠 Andy Xie: Fear the Dark Side of China's Lending Surge

Here's a long and important section of Andy Xie's latest:

The current surge in commodity prices, for example, is being fueled by China's demand for speculative inventory. Damage to the domestic economy is already significant. If lending doesn't cool soon, this speculative force will transfer even more Chinese cash overseas and trigger long-term stagflation.

Commodity prices have skyrocketed since March. The Reuters-Jefferies CRB Index has risen by about one-third. Several important commodities such as oil and copper have doubled in value from this year's lows. As I have argued before, demand from financial buyers is driving commodity prices. The weak global economy can't support high commodity prices. Instead, low interest rates and inflation fears are driving money into commodity buying.

Exchange-traded funds (ETFs) alone account for half of the activity on the oil futures market. ETFs allow retail investors to act like hedge funds. This product has serious implications for monetary policymaking. One consequence is that inflation fears could lead to inflation through massive deployment of money into inflation-hedging assets such as commodities.

Financial demand alone can't support commodity prices. Financial investors can't take physical delivery and must sell maturing futures contracts. This force can lead to a steep price curve over time.

Early this year, the six-month futures price for oil was US$ 20 higher than the spot price. Investors faced huge losses unless spot prices rose. A wide gap between spot and futures prices increased inventory demand as arbitrageurs sought to profit from the difference between warehousing costs and the gap between spot and futures prices. That demand flattened the price curve and limited losses for financial investors. Without inventory demand, financial speculation doesn't work.

For some commodities, warehousing costs are low, limiting net losses for financial buyers. Some commodities can be used just like stocks, bonds and other financial products. Precious metals, for example, are like that. Copper, although 5,000 times less valuable than gold, still has low warehousing costs relative to its value. Some commodities such as lumber and iron ore are bulky, costly to warehouse, and should be less susceptible to financial speculation. Chinese players, however, are changing that formula by leveraging China's size. They've made everything open to speculation.

The worldwide rally of commodities and equities is a speculation led bubble based on future growth expectations that have no basis in reality. Economic data continue to point to a very weak U.S. economy, check out a recent post by Mish on truck and rail traffic. The Baltic Index is up because the Chinese demand requires shipment of commodities, but rail traffic in the U.S. doesn't show resource demand.

Andy Xie's comments on ETFs and the implications for monetary policy are important. Never before have commodity markets been so accessible to retail investors, yet the commodity markets themselves remain relatively small compared to stock and bond markets. There's a lot of room for growth, should investors decide they want out of equities and into commodities. This also means investors can exit the U.S. dollar and financial assets at a moment's notice.

In the early 1980s, Ed Yardeni dubbed the inflation hawks in the bond market "bond vigilantes". Today, there are still bond vigilantes, but now retail investors can join the game via derivative ETFs such as ProShares Ultra Short 20+ Year Treasury (TBT), or various commodity ETFs such as SPDR Gold Shares (GLD), PowerShares DB Agriculture (DBA) or PowerShares DB Oil (DBO).

Financial markets don't do what everyone is expecting though—"the market" is the master of misdirection. If investors anticipate high inflation, they will pour into commodity funds and drive up interest rates. The government may try to restrict commodity speculation, and that could be a part of upcoming financial reforms. Otherwise, the Federal Reserve and other central banks will be forced to raise interest rates and drain liquidity from the system, and that will touch off another round of deflation.

The speculators are in the driver's seat because they suspect (many would say they "know") that the government finds another deflationary event unacceptable. They are playing chicken with the central bank because they believe central banks will swerve their inflationary Fiat in the face of the deflationary Mack truck. The behavior of speculators guarantees very high inflation if the central banks do not curtail credit. In order to have the "healthy" inflation the central banks want, they must restrict access to commodity markets and/or chase the speculators out. A well-timed liquidity drain or surprise rate hike would put the central bankers in the driver's seat of the Mack truck and leave the speculators packed in the Fiat.

I do not believe the central banks can create the inflation they desire while the world is watching. There is a natural law underpinning the world that cannot be defied for long. In the absence of central bank inflation, speculators are setting up the next round of deflation as high resource costs drain the pockets of consumers and business alike. The central banks cannot print money unless people are willing to hold it, i.e .unless there is a healthy demand. Recently, demand for cash was so strong that the velocity of money plummeted. In a high velocity environment, with very low demand for money, central bank printing is suicidal. The central bankers need to keep demand high, and they will do by keeping the spectre of deflation alive. Without it, they can only fail.

上海拟推出原油期货

上海市副市长屠光绍2日在第六届上海衍生品市场论坛上表示，作为上海国际金融中心建设的重要内容，在期货市场和金融衍生产品发展方面，上海将有序推出原油、汽柴油等能源化工期货品种，以及股指期货、外汇期货、股指期权、黄金ETF等金融产品。

。。。值得注意的是，屠光绍对于商品期货的推出次序问题亦作出更为细致的表述。他表示，根据意见精神，在上海期货交易所有序推出原油、汽柴油沥青等能源化工期货品种，推动形成亚太地区的原油等大宗商品价格；开发铅、白银金属类期货，以及商品指数类期货，要探索在海关特殊监管区内开展期货保税交割业务；引入境外投资者参与上海期货市场交易，同时有序推出股指期货、外汇期货，股指期权、黄金ETF等金融产品，积极培育以其为定价基准的各类衍生产品。

上海拟推出原油期货

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.

Solar Cycle & Agricultural Commodities

The Sun remains quiet, and some scientists speculate that this could be the start of a cooling period not unlike the Maunder Minimum 蒙德极小期 of the 17th Century, which triggered the "mini ice-age".

The economy used to closely track the weather because agriculture was the dominant industry, and it played a prominent role in Kondratieff waves. Industrialization replaced the farm with factories, and the service economy has replaced the factories, such that the supply of credit, rather than favorable weather, controls the boom-bust cycle of the economy.

However, the 1930s saw widespread droughts in the U.S., and the 1970s was relatively cool, leading some scientists to predict a coming ice-age. These were not causal factors for the economy, but they made an already difficult economic situation worse. Significant cooling would lead to an increase in demand for fossil fuels and shorten the growing season for agricultural commodities, directing resources away from other sectors of the economy and into the energy and commodity sectors. More income would be consumed by energy and food, leaving less capital to repay debt.

Though speculative at this point, solar output is a potential X factor in the future direction of commodity prices.

在阿富采挖铜

前一年半，中国冶金科工集团获阿富汗埃纳克铜矿开采权

阿富汗矿产部长昨日宣布，中国国有企业中国冶金科工集团公司(China Metallurgical Group)已获得阿富汗一个大型铜矿的开采权，此前该集团同意向该项目投资30亿美元。

此笔交易是阿富汗历史上规模最大的外国投资，中冶集团将由此获得在喀布尔附近埃纳克(Aynak)铜矿开采高品质铜的权利。

中冶集团每年将向阿富汗政府支付4亿美元的开采费。一些地质学家认为，这可能是全球最大的铜矿。

。。。中国媒体报道称，中冶集团与另两家中国矿产集团联合竞标这个阿富汗项目，它们分别是中国最大的铜生产商江西铜业(Jiangxi Copper)和中国领先的黄金矿业企业紫金矿业集团(Zijin Mining Group)。

现在，美军正在保障这里的安全，以使中国能开采世界上最大的铜矿之一。

在位于喀布尔以南山区的塔利班盘踞地，美军正在保障这里的安全，以使中国能开采世界上最大的铜矿之一。作为价值30亿美元项目的一部分，一家中国公司正在开辟通往埃纳克铜矿的土路。美军上月沿着这条路搭建了基地，还在中国筑路工人营地外扎营。美军的部署不是为了保护中国投资———阿富汗有史以来最大的投资 ———而是为封锁塔利班向首都喀布尔的渗透。但如果这能为阿富汗经济振兴所需的项目提供安全，也是受欢迎的。

阿富汗首席矿业和能源顾问拉赫曼·阿什拉夫说：“当我们有钱投资像埃纳克这样的项目时，就能给人们提供工作机会。”确实，该项目能给贫困的阿富汗注入数亿美元的资源费和税收收入，并创造数以千计的急需的工作岗位。

紫金矿业集团 (2899.HK)和江西铜业 (0358.HK)从52礼拜最低的价个它们升值344%和277%。

买铜了吗？

据安布罗斯·埃文斯-普里查德报道，中国的铜购买超过其工业需要.

负责运送商品到大陆的台湾信荣航运公司（TMT）的Nobu Su表示，北京政府醒觉西方不断印钞票是一个“黑洞”，所以正购买天然原料，可以用于长期基建发展，认为这样做是运用其1.9万亿美元储备的更好方法。他说：“下一次工业革命将由混燃汽车带动，这需要铜。”

SRB同时亦在累积铝、锌、镍和稀有金属钛、铟、铑和镨。去年商品价格下跌，中国低位购入金属储备很合理，但分析指背后另有其他原因。麦格理银行的商品专家伦农表示，中国购买金属显然是想分散美国债券和美元储备的风险。

铜有一个非常好看的图表由于这一购买。这里的iPath铜（ JJC ） ，交易所交易基金，跟踪道琼斯- 美国国际集团的指数。

中国的这个举动是很有意义的几个层次，如上面所解释。他们可以使用的金属，但它也创造了基础硬通货，这最终可能会导致人民币取代美元，欧元或日圆作为全球储备货币。

从历史上看，我国严重依赖铜的硬币，后来有银，铜系统。维基百科有一个良好的总结铜币在中华帝国。

英文翻。