By Tim Seymour
The schizoid trajectory of the copper market looks set to take another leap upward as Chinese manufacturers start hoarding the key metal once again.
Demand for copper in China has pushed prices in Shanghai to $120 a ton above what that much metal would earn on the London spot market.
Local traders say they are fielding a lot of interest in copper, which has already rebounded 7% worldwide off its May 12 low.
What does this mean? Other than highlighting the upside for the iPath DJ-AIG Copper Total Return Sub-Index ETN (JJC) and similar copper portfolios, it means that China stepped away from the copper market for the last six to eight weeks deliberately, not out of any sudden economic weakness.
Now that Chinese companies have ground down their inventories, they need to fill up their warehouses again. Remember, they still need tremendous amounts of copper to build out their electricity grid. Forget the housing numbers. If nothing else, this is an infrastructure play in a power environment that desperately requires investment.
Scrap prices are tightening and no less a name than Goldman Sachs is urging clients to get back long on copper.
Even Teck Resources Limited (TCK) gets a ride here: