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Peak Copper? |
HenryTo
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 Posted: Wed Dec 28, 2005 12:53 am Post subject: Peak Copper? |
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Very bullish sentiment now on copper prices - culminating now in an argument for "peak copper."
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The Globe and Mail
Copper the new must-have metal
By ERIC REGULY
Tuesday, December 27, 2005 Page B2
We asked Barrick chairman Peter Munk last spring to name the metal he would buy with his own money. Surprisingly, the answer wasn't gold. "Buy copper," he said. He was right (although gold prices went up, too). Copper prices rose almost 50 per cent this year and have doubled over two years.
Tens of millions of rural Chinese are moving into cities, he said. Their new homes require copper plumbing and wiring, and Chinese mines and smelters can't meet the internal demand. China alone eats up more than a fifth of global copper supplies.
With the price going so high so fast, it's tempting to take some money off the table. But hold on. A new investment theory making the rounds says oil and copper might, distressingly, have a lot in common. You've heard of "peak oil." How about "peak copper?"
The peak oil camp argues that the planet's oil production has reached, or will soon reach, peak production, followed by slow but irreversible decline. The true believers point to oil fields that are becoming less productive, sometimes alarmingly so, and the distinct lack of big new discoveries. In fact, most of the world's oil comes from fields found in the 1970s or before. The peak oil advocates naturally expect prices to go up; to them, $100 (U.S.) a barrel is possible in the not-too-distant future. They invest accordingly.
You wouldn't think copper has much in common with oil, economically speaking.
When I renovated my house last year, the contractor installed plastic pipes instead of copper to save a few bucks. Put plastic in millions of homes, and copper prices, you would think, will come down. "Substitution" does not generally apply to hydrocarbons. I can't save money on my heating and transportation bills by replacing natural gas or gasoline with another fuel of similar price; that other fuel doesn't exist.
But there are no reasonably priced, and equally effective, substitutes for copper when it comes to electrical conductivity. Electrical uses, not plumbing, are the metal's main market. If you want wiring, you get copper unless you're a millionaire and can afford silver. Copper bulls expect the auto makers to drive up copper demand. Hybrid cars, which combine gasoline engines with electric motors, use almost twice as much copper than regular cars. The number of hybrids on the road is doubling every year. Credit Suisse First Boston says copper demand has been rising 4.3 per cent a year on average since 1997 and could go to 5 per cent.
That's the demand side. The supply side isn't keeping up, which brings us to the next parallel to the oil market.
Oil's swing producer is OPEC. In the copper world, OPEC's equivalent is Chile. In the past 15 years, Chile has provided two-thirds of the world's copper supply growth. One of the biggest Chilean mines, Collahuasi, is 44 per cent owned by Toronto's Falconbridge.
The country has been a godsend for China and other voracious copper munchers.
Now the bad news. "Going forward, Chile has fewer options for growth and its seems a lot of the low-hanging fruit has been picked," CSFB said in a recent report.
It added that "based on existing mines, Chilean copper production has plateaued and could decline, from 5.5 million tonnes in 2005 to 4.4 million by 2015, as mines age and copper grades decline." In fact, Chilean copper product fell almost 3 per cent in the first 10 months of 2005.
Sound familiar? Peakists must be delighted to have another allegedly peak commodity to fret about.
But won't the soaring price trigger a copper exploration and production bonanza? There's more bad news. Like oil companies, copper companies are investing more and more to yield less and less. Chile's Codelco, the world's biggest copper producer, invested $4-billion to raise production by a mere 165,000 tonnes a year. That's equivalent to almost $11 a pound of extra capacity. The price of copper was $2.09 a pound just before Christmas.
In spite of the shortages, the overall investment in extra production is, at best, modest. Blame greedy investors and their short-term thinking. They would rather see the high prices fund share buybacks and special dividends instead of risky plays in dubious parts of the world, such as the Democratic Republic of the Congo, one of the last regions thought to have big, untouched copper deposits.
Combine evidently waning Chilean production, a reluctance to throw billions at new projects and relentless Chinese demand and you have a recipe for supply deficits and even higher prices. No surprise metals analysts are raising copper price forecasts by double-digit rates for 2006 and 2007.
This is good news for investors. Falconbridge and Inco (the two are merging) are primarily nickel makers but have a lot of copper production. Toronto's Inmet Mining is another copper-heavy player. Big copper names outside Canada include Phelps Dodge, Southern Copper and KGHM. The new year may bring them riches they could only dream about in the lean 1990s.
ereguly@globeandmail.com |
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rffrydr
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| Posted: Thu Mar 31, 2011 12:19 pm Post subject: |
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Boy the Alphaville crew are really on the scent here. And as "early as Jan. '10." No surprises for MT readers however.
http://ftalphaville.ft.com/blog/2011/03/31/530726/why-the-chinese-copper-financing-scheme-is-a-big-deal/
As pointed out many times there is a long and distinguished history of using metals (and even oil and corn) exports to make end-runs around controlled currencies. When they call it "Red Gold" they're not kidding. Far from the bearish implications however it is precisely this level of integration into the financial system I would have expected. Certainly the collapse of western financial structures only cemented this.
Now going back a little further we remember the collapse in grain prices and the chinese walking in mass on their contract purchases.
http://tinyurl.com/4grtjwt
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rffrydr
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rffrydr
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| Posted: Tue Feb 22, 2011 9:59 am Post subject: |
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I am tempted....Apple and Copper.... This is why "contranianism" will never be "priced in." Thank god for options.
· The International Copper Study Group said that refined production of copper exceeded demand by 5,000 tons in November – second straight monthly surplus.
· Codelco said that the price of copper is not slowing demand. There has been no slowdown from China – Mining and Energy Minister of Chile.
· Copper stocks continue to rise.
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rffrydr
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rffrydr
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HenryTo
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rffrydr
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rffrydr
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| Posted: Mon Jun 07, 2010 8:32 pm Post subject: |
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The chinese property connection:
http://www.bloomberg.com/apps/news?pid=20601101&sid=arDnQ7biwbSw
I expect this trend to be defied as just as property is more than property--but a kind of bond; copper has become a kind of money. With gold shooting up, "red-gold" should follow.
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rffrydr
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rffrydr
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| Posted: Tue Apr 27, 2010 5:34 pm Post subject: |
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Thar she goes. Gold, meanwhile, up to it old deflation tricks.
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rffrydr
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| Posted: Sun Apr 25, 2010 8:36 am Post subject: |
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A 30% fall in global demand last year and a 30% drop in prices....right?
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rffrydr
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| Posted: Thu Jan 21, 2010 10:19 am Post subject: |
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rffrydr
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| Posted: Mon Nov 23, 2009 5:36 pm Post subject: |
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The aluminum news put paid to the claim that there is not State diversion of surplus. You need to add in the purchase of one quarter of Southern Kabul, the RIO grab, the re-colonization of Africa.... but, as indicated below, copper has become "precious" in China. This stems not only from the boom but the huge catching out short the state purchasing arm in '06 and the mobilization of the citizenry to make the delivery.
Now, the pages of FT are dappled with high-end swiss watches....in copper! "Red Gold" is the name they put on it:
http://www.ft.com/cms/s/0/0f810960-d082-11de-af9c-00144feabdc0.html
Who’s brewing copper kettle mania?
By John Dizard
Published: November 15 2009 09:49 | Last updated: November 15 2009 09:49
I | Quote: | n the peak time for both disco music and silver prices just 30 years ago, you heard the metals traders talking about people melting down their silver soup tureens to hit the rocketing bids from the speculators.
Now I am hearing about the same phenomenon, but in reverse. As one commodities banker told me: “The Chinese traders assure me that demand for copper kettles from households has increased massively. They can’t buy copper derivatives, but they can buy those.”
To the degree you can understand a mania, that is understandable. By mid-last week, the gold price had increased by a bit more than 37 per cent from the beginning of the year; copper was up by 116 per cent. You would almost expect gangsta chic to shift to copper dollar sign necklaces.
There is little doubt among the copper market people that Chinese demand is the proximate cause for this run. How much of this demand is “real”? Antaike, a state-owned Chinese commodities data provider, has publicly estimated that end users are only buying 10 per cent more metal in 2009, for a total of a bit over 5.1m tonnes, while copper imports have more than doubled in the first nine months to 2.6m tonnes.
This is not the Chinese government cleverly diversifying its way out of the dollar, as some retail commodities salesmen and advisers would have it. The Chinese state has declared purchases of just 235,000 tonnes this year, and has made it clear that it is unhappy with the rise in the copper price, and with private Chinese speculation.
Eugen Weinberg, Commerzbank’s head of commodity research, says: “It is not possible for the Chinese to use copper to diversify its [forex] assets. Even a 1m tonne purchase by them would have a massive effect on the price, but would only cost $6bn.” That would be just a statistical error in the valuation of Chinese reserves.
No, this is predominantly private buying, or, if you will, diversification. It is financed by the Chinese banks, the conduits for much of the official stimulus spending. Why can’t the government control what the banking system is doing? Because if you want to use the cheap stimulus money to make a copper bet, you do not call it speculation on the loan application. You tell the bank that you want to make transformers, or water heaters, and this is necessary raw material. Until the transformers or heaters are made, or not made, the government cannot distinguish the speculative buyer.
“Copper is really good collateral all around the world,” Mr Weinberg says. “With an LME warrant [London Metal Exchange warehouse receipt for metal in storage], you can borrow from 70 per cent to 90 per cent of the value.” In addition to this sort of leveraged speculation you should add such unleveraged stockpiling as the copper pot purchases.
One principle of good manufacturing management is keeping inventories to the minimum level necessary; if just-in-time is too risky for a country with transportation system weaknesses, then as close to that ideal as possible. That would mean a few days’ supply, or at most a couple of weeks. Instead, it seems reasonable to believe that there is around a million tonnes of excess stocks accumulated in China this year, or about two and a half months of the real end demand.
Consider those Chinese bank-financed holders. The banks’ handbooks say that it is prudent to have a high loan-to-value rate against a commodity such as copper because it can be sold so easily. If the copper price declines, then the borrower can either put up more cash margin, or quickly sell the copper. True. Most of the time.
Let us say that there is a modest dollar rally in the near future, supported by central banks that do not want their economies to suffer more from the dollar’s devaluation. That would tend to weaken the copper price. So the banks, including those in China, would ask for more collateral, or sales of inventory . . . and around again in a circle, accelerating any decline.
Usually this sort of run-up-and-unwind would come late in an economic upturn, but this is supposed to be early in a recovery. We can thank the bubble-blowers in all the central banks, not just the Chinese government.
Does this mean that copper is heading for a catastrophic crash? Depends who you are. A dramatic price decline would not be bad for the real end users, or the buyers of the Chinese state stockpile.
Let us consider the technicians’ outlook. Martin Pring, of Pring Research, says: “The copper chart is telling me that it is in the early stages of a bull market. I have been expecting a correction in the commodities, but in a bull market they don’t happen when you expect they should. Normally, the rule for a correction would be one-third to two-thirds of the previous rally, but sometimes you test the lows.”
Even a correction in a bull market would be expensive for a lot of people, including those in the overstocked Chinese kitchens.
Think about the motives of those who hold the Chinese state chequebook. They are not on the side of the bulls. |
| Quote: | Howard Simons
Aluminum And Buyers Behaving Badly
11/23/2009 1:01 PM EST
One of the lessons of behavioral finance is people are not the cold calculating machines postulated in economics textbooks. This applies to institutional behavior, too.
I gave a shrug to global miners a few weeks ago, so I was interested in reading a post on Bloomberg about excess aluminum supplies. Let's just say there's a lot of metal in warehouses, a lot of excess capacity and no "stop" button being hit anywhere.
As I had posted some data earlier this year on China's aluminum imports and how they had surged, I thought an update might be in order (thousand metric tons):
Nov. 2008: 54.48
Dec. 68.90
Jan. 2009: 56.36
Feb. 60.07
Mar. 147.18
Apr. 439.90
May 331.74
Jun. 353.42
Jul. 222.86
Aug. 189.75
Sep. 195.88
Oct. 86.61
Remember, China has the stimulus program that works. I look at these numbers and envision a shouting match in an office, "When I told you to buy aluminum, I didn't mean all of the aluminum!
Maybe they can start a fashion trend of aluminum-foil dresses for that space-age gleam. Small wonder Alcoa is underperforming. |
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