China accounts for about 40% of global copper demand. Copper goes into nearly everything built or manufactured that uses electricity: office complexes, apartments, homes, cars, electronics, machinery, infrastructure projects, airports, high-speed rail, kitchen appliances, wires of all kinds, even water pipes.
Copper has been a strategic metal in China. It has been stockpiled. Without access to copper, China’s economy would grind to a halt. China’s economy grew officially at a phenomenal 6.9% rate in the third quarter, and you’d think with this kind white-hot growth, China would heat up demand for copper and push up its price. But no.
Something is mucking up the equation, and the price of copper plunged to a new six-year low.
The copper-futures contract for December delivery dropped 1.25 cents to $2.2175 a pound, the lowest closing price since July 2009. Copper has plunged 22% year-to-date from the already low levels at the beginning of the year. It has lost more than half its value since the days of hope in early 2011.
This monthly chart shows the relentless, multi-year cascade south since 2011. Copper is now back where it had been in February 2006:
In sympathy, mining stocks have gotten clobbered. The S&P Metals and Mining Select Index, which tracks the stocks of 30 miners, has plunged 54% from a year ago and 78% from April 2012.
Given the relentless deterioration of this multi-year fiasco, you’d think copper production would decline to bring supply and demand back into balance. But no. Global production is expected to rise to a record 22.89 million metric tons this year, according to Barclays, cited by the Wall Street Journal.
And it’s not over. While some of the world’s largest producers, including Glencore and Freeport McMoRan, are shutting down some less efficient mines, more efficient mines are coming on line.
“There’s over a million tons of additional supply coming on line next year and the year after during a time when demand is seeming to stall,” Dane Davis, a metals analyst with Barclays in New York, told the Wall Street Journal. “Not only are prices going to be lower, they will be lower for a sustained” period.
Moody’s had already warned in September about those prices and what they would mean for Glencore – which is struggling to whittle down its mountain of debt to stay alive – “particularly if copper prices were to decline to below $2.2/lb on a prolonged basis….”
That’s the level copper is testing now.
But global demand for copper hasn’t actually collapsed. It’s just growing very slowly. Demand is expected to edge up to 22.4 million metric tons this year. That kind of sluggish growth is not at all in line with the official strength of China’s economy, the kind of strength that would produce a white-hot 6.9% GDP growth.
Instead, demand from China is simply anemic. Stockpiles are large. Production is hitting new records. And no other country in the world can fill the demand-growth vacuum left behind by China.
Speculators see the slack demand in China, and rather than believing the government’s official growth story, which would light a fire under copper, they expect China to whittle down its copper purchases as the economy continues to languish.
Now everyone is praying for more stimulus, more debt creation, more construction projects, high-speed rail projects, if necessary to nowhere, more ghost cities, more incentives for car buyers…. even as retail sales officially gained 11% year-over-year in October, while industrial production officially rose 5.6% over the same period, and fixed-asset investment – more ghost cities? – rose 10.2% in the January-October period.
These numbers don’t square with the anemic demand for copper. Copper is involved in all three categories, and demand for it should have risen with them. But it didn’t. And it’s hard to argue with copper.
So who is going to pull the global economy out of its funk? No one knows. But it’s not going to be China – regardless of how many more times the central bank is going to tweak its policies and cut interest rates. That’s what China’s trade fiasco is saying. Read… China Trade Swoons, Collapse of Containerized Freight Index Hits Worst Level Ever, Global Slowdown Worse than Forecast
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Africa and MENA region is still growing (just avoid conflict zones) ;)
This is proof of how damn hard it is to invest in the present climate.
Once upon a time, “official” figures, albeit not infallible by any stretch of imagination, at least gave you an idea of what was going on in a given economy.
Now you get Spain with her miraculous 3% GDP growth and China’s industrial production soaring almost 6% in a single year… right!
These indicators were once supposed give investors at least some basic guidelines but have since devolved in something utterly useless apart from propaganda purposes.
I remember what an HSBC analyst once said about China “Their economy behaves according to a postulate of Heisenberg’s Indetermination Principle: the closer you look at it, the more it changes its behavior. Once we realized GDP growth was basically useless for our purposes, we shifted to industrial production, retail sales and fixed asset investments. In less than a year these official figures started to spiral ouf control, with regular double digit growth. We have now shifted to electricty consumption, container count, freight volume and similar indicators. And we have started seeing signs of the same behavior”.
All countries are guilty of statistics manipulation, although some are more guilty than others. China however has taken things to very next level, by pretending to live in fairy-tale world where nothing ever changes.
Watching Glencore …….
Stock on a downward slope for the last week.
When do those derivatives blow up?
Glencore really sliding this morning – down 7% in two hours.
WMD derivatives ready to blow.
4 hours – down 8%
Down 12% – 6 hours
Prepare for shockwaves..
Since we live in a world where bad news is good news, the coming depression should lead to S&P 3000 and DOW 28000. We will be told that things can only get better from here and the Fed will simply buy $10 trillion of ETF’s. Wolf, write some good news for a change, even if it is totally false, so maybe we can get a three per cent correction
“We will be told that things can only get better from here and the Fed will simply buy $10 trillion of ETF’s.”
I fully expect the Fed to buy overtly bank and insurer stocks, equity index futures and/or ETFs, subprime auto loans, munis, bad energy sector debt of banks, and more MBS paper during the next recession and bear market.
I will not be surprised to see the Fed’s balance sheet reach the level of bank loans after coming charge-offs and run-offs.
Think Japan beginning in the early 2000s to date.
The US has increasingly become a rentier-socialist imperial corporate-state de facto centrally planned by the Fed/TBTE banks.
Here’s the issue that economists don’t understand. Whatever measures the economic witch doctors take to try to right the listing economic ship may have a modest positive effect on the economy initially. Unfortunately, once they go down this manipulative path, larger and larger doses of the ‘treatment’ are required in the future to obtain the same effect as the initial treatment.
I hypothesize that there is a strong correlation between economic intervention and a heroin junkie’s addiction. The junkie requires bigger and bigger doses of smack to get the same high – until the junkie finally dies. It’s a similar process for the economy. Just look at Japan – ‘a bug in search of a windshield’ as John Mauldin likes to say.
So yes, during the next crisis, the criminals in charge of the Fed will be running their printing presses at warp speed to buy up every failing asset they can. That will, of course, include Puerto Rico, Chicago, and Illinois State municipal bonds, CMBS, RMBS, and bad energy loans.
Ultimately, they will destroy every last vestige of free markets in order to ‘save’ the free market system.
The die is cast, although many refuse to accept what is coming and come it will. The base problem is debt….everywhere and growing constantly as our whole financial system is credit based and it doesn’t take a genius mentality to see that at some point the debt cannot be serviced even if more fiat is pumped into the system because that fiat is only chasing past fiat expansions.
The first wave of trouble brewing comes in the form of lowering debt expense, basically the free money period which is now, But the real devil is that in creating more fiat to cover even that begs to be paid back, but it can only be paid back in extending lending as zirp to infinity. So, diminishing interest accomplishes nothing until we go to negative interest which would be the worst situation of all virtually guaranteeing financial collapse. So, all the banter on market conditions mean nothing.
I have been thinking on Neg interest, it is actually State instigated deflation.
The Growing problem with liquidity, is becoming where to put it, beyond the grasp of Socialist confiscators, and irresponsible bankers, who treat their customers funds as a heads I win tails you loose” gambling tab.
Gold is most defiantly NOT the Answer.
So copper price is going down.. Big woop..don’t trade copper! It’s still needed and won’t go away …currently there’s a glut .global growth is not what it should be!!!!! SEZ WHO??? What’s wrong with slow and steady ahead. Let’s keep things in perspective.
In perspective, yes. Inventory to sales ratio growing, sales declining. We are in a recession.
Consumables? Or non-consumables?
Renewable consumables? Or non-renewable non-consumables?
Investing in the present economic/financial climate, is like attempting to walk/crawl through a field thickly infested with mines. The absolute trick is not to get blown up! Not just lowering risk, but risk avoidance.
This means assuring smallest risk and the return of your capital, rather than a return on your capital. If you can achieve all three, then that is where your capital will be the safest, with the least amount of risk.
Acquire tangible assets that contain a self supporting return covering cost of ownership, plus a small net yearly dividend.
Fertile, arable, productive farmland that is obtained without use of leverage. Leasing said land to a carefully selected tenant, in which you enter into a profit/loss sharing plan. Complete with safeguards and no fault exit. Fairness is key. Your initial capital investment remains safe in the land. It provides an ongoing overhead cost cover and remits a small yearly return. Each party is happy with this fair and equitable arrangement.
Greed will destroy it.
I’m amused that you think that in a collapsing economy where central planning is manipulating all financial asset classes, land will be kept safely in private hands. I don’t think so. Land represents the jurisdiction of the state. It is the one thing that defines the state and therefore, the first thing the state will claim as its right. When the SHTF nobody will be immune.
Everyone must eat to maintain life.
This not only pertains to the proletariat, but to the elites also.
The means of production will gain support and protection. As to the disposition of the produce generated, is where the question arises.
When it comes to immunity? Some will be more immune than others!
Thats why I like sail boats and own crossed financed assets in multiple nations. With firewalls between each..
When they confiscate they land, they will also get the finance package, I will already have sailed away.
“I fully expect the Fed to buy overtly bank and insurer stocks, equity index futures and/or ETFs, subprime auto loans, munis, bad energy sector debt of banks, and more MBS paper during the next recession and bear market.”
That would be a doomsday scenerio the hard money advoctes would love. I would think that irrepairable damage will be done to pensions and insurance companies if zero interest rates.
Therefore the FED will need to do something shortly otherwise you may be right.
Money is wasted on the rich. All these slumps are occurring because the dollars are piled up at the final station on the line; offshore, tax-free bank accounts. The issue is not the amount of debt money (there’s too much already), it’s the velocity that’s the problem. QE to bankrupt financiers has only delayed the collapse we needed 7 years ago.
The rich are not the problem, they never have been, or will be.
Just as capitalism is not the problem.
The problem is the unsustainable consumerism, fueled by cheap credit, American corporates forced on the world, that china has taken over, globalized, and lost control of.
The western buyers cant afford anymore credit, no matter how much the ‘you must have” drum is beaten. As western wages and employment are still in decline.
The jealous have not’s, beating the haves, solves nothing.
Globalization was supposed to raise the bottom, china and American corporates hijacked it, to leverage themselves up at the expense of the top and bottom.
Now they are over-leveraged and have destroyed their customer base, took them less time than projected.
Some of the corporates will now have to die, so that others can have what is left of their sales, and modify the current model into something a little more sustainable.
“Now they are over-leveraged and have destroyed their customer base,…”
Next time one of the TBTE’s fail, it’s time for the government to seize their assets.
“Next time one of the TBTE’s fail, it’s time for the government to seize their assets.”
No its time for the TBTE to be allowed to go bankrupt 1 at a time slowly.
The assets belong to the creditors and stock-holders, not the robber-baron state administrations.
Glencore may be about to fail, should it do so, it will relieve pressure on other miners.
TBTE’s must only be allowed to fail individually with large time gaps between each, or they will take down the whole system, result 1929 x 100 or possibly 1000, only a maniac wants that.
Copper is perhaps the only commodity with a PhD in real-world economics.
Silver is still basically in touch with reality.
Go to Kitco at about 2:15 a.m. EST and watch the naked shorts pop out on gold/silver almost every night to hold the price down. Record PM sales yet prices just keep falling? That is nowhere in supply/demand natural process. Paper prices and demand are nowhere near reality. Regulators have to see this but either don’t care or are complicit.
You probably have that back to front.
Look at the gold silver divergence since Nixon in particular, gold is being held up not down. it is at least 300% overvalued.
Or d, could it be that silver is 300% under value? You think gold should be around $290 now? Seriously?
Seriously gold should be under 290.
gold has radically diverged from everything, not just silver.
20 years ago in a certain country an Oz of cannabis was worth more than an Oz of gold.
Supply and demand have remained similar, the OZ of cannabis is now worth 300.00 a little more than it was 20 years ago and gold is now down to roughly 230 % more than that.
Gold is the most hyped and useless “commodity” on the planet, its price is driven by hoarders, fear, and speculators. Certain CB’s are also playing the gold game.
Everything else including wages must come up 200% +, or land and gold must go down, lots. The divergent imbalance can not remain, in the long term, simple
The 300.00 cannabis should be 200.00 US.
Linking gold prices to an agricultural product is nonsense; it is no different than the incoherent ramblings of Irving Fisher and his indexing scheme.
Ag product availability and its pricing is dependent upon demand. As demand increases, prices rise and the farmer plants more which drives the price back down. The cycle can be as short as a few months.
Metal production follows a much longer cycle; often over a decade from discovery to shipping the first concentrate.
As to the natural price of gold, its worth in USD is just what it is. You can’t index anything against a moving target, the USD.
So all we can reasonably do is compare purchasing power against a wide range of products that can’t be quickly altered in quantity or quality. This puts us back to using Fisher’s idiotic indexing nonsense; currently in vogue in the USA as the CPI.
The cycle of fiat must run its course. Afterwards we will see who are the last wealthy families standing. Generational wealth can only be acquired through saving in tangibles that retain value and/or generate a profitable revenue stream during economic collapses.
Precious metals and farm land fit the task quite well. Unfortunately for most, the PM will be traded for food and the land will lay fallow due to the owner’s inability to keep it in production. The vast majority are incapable of raising a handful of turnips let alone running a diversified family farm.
Never fear, the benevolent US government has a plethora of farm programs where the farmer has put his crop up a collateral. Crop seizures will become the norm and many of the farmers will fall by the wayside after the first crop seizure. Any questions about where the ag products will go? Fascism is a partnership of government and industry.
Perhaps he who holds the gold makes the rules until the gold runs out. Then might makes right.
But then again, I might be just another crank who doesn’t have a clue. Er, maybe I do have one clue. Comparing the price of gold to cannabis is nonsense born of imbibing in too much cannabis. A two month production cycle versus a ten, fifteen, maybe twenty year production cycle. Yep nonsense.
The Agricultural product was and EG.
Gold has diverged, insanely, from EVRYTHING, not just silver, or some agriculture.
Gold and urban land prices must come down 60% +, or everything else, starting with wages and salaries, must come up to the levels of gold and urban land.
Sectors of some city’s are starting to die, as ordinary people can not afford to live there, or travel there to work.
It is not supply and demand, gold is being hoarded and manipulated, worse than Jewelery diamonds.
Gold and urban land, have been driven by speculators and hoarders to untenable, totally unrealistic levels. there must be a correction, one way or another.
The rest is hoarder gold bug bla bla