Copper prices: Why is China super-sizing its stockpiles?
Today's Financial News - Posted April 16, 2009
Savvy commodity investors are sitting on huge gains so far this year. While few investors were watching, copper prices made a tremendous move. It’s all thanks to China and its growing hatred of the American economy.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): One of the best investments of the year so far is also one of the most surprising. Over the last six months, copper prices have flat-out soared, with the spot market jumping by more than 50%. Many of the gains have come in just the last few trading sessions.
What gives? Why is a highly cyclical commodity increasing in value when all traditional logic says its demand and therefore its value should be plummeting?
It’s all thanks to China. There could be deceitful logic behind the country’s recent buying spree.
As we all know, China has a huge stake in the American economy. More succinctly, it has a huge stake – about $1.9 trillion worth – in the value of our currency. If the dollar suddenly falls due to massive inflation or a drastic change in demand for the rock-solid (at least for now) currency, China’s immense foreign currency reserve will get rocked.
China has already told the Treasury, its appetite for our bonds is dwindling. With low interest rates and a soaring national debt, China thinks it has a better shot at success elsewhere.
Thanks to some data over the past few weeks, that “elsewhere” may be the copper market.
Changing course
Copper imports into China during February reached an all-time high of 329,000 tons, only to be solidly surpassed in March with orders totaling 375,000 tons.
According to some analysts, the sudden demand was not created by the country’s recent $585 billion stimulus, but China’s strategic change in its currency reserve plans. Instead of relying on a shaky American political system and the resulting economy, China looks to be intent to rely on a basket of valuable goods, including copper.
The big question for investors, of course, is will the buying continue? So far, the answer is no.
By gauging the recent fall in cancelled warrants (metal ready to be shipped from warehouse), it appears China was merely taking advantage of depressed prices and seizing a quick buying opportunity. We will have to wait until April’s results are in to see if this is a long-term trend.
Right now, China’s demand will wane and prices will drop… at least temporarily.
My advice is to stake your claim when prices drop. China is dead-on serious about ridding itself of its dangerous ties to the American dollar. If that means it will take a larger stake in a politically stable commodity like copper, it is the place to be when the world starts moving forward once again.
If you missed out on the latest bull-market frenzy, wait a few months. You will get another fantastic buying opportunity.
Next Article: TFN Biotech Stocks: Keepers and Losers
Be the first to leave a reply.
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down