Is the Copper Market Rigged?

Includes: JJC
by: Wildebeest

FT Alphaville recently ran an article discussing the hidden inventories of copper. Readers will probably be aware that bullish analysts and pundits -- heading the list is Barclays (NYSE:BCS), which is mentioned in the article -- have been talking up copper for 18 months, primarily based on assumptions of growing demand, including soaring demand in China, and falling supply. I have argued that the copper market, in fact all base metal markets, are a casino driven by speculation and a weak US dollar, and are trading at levels unrelated to underlying supply and demand.

For me, the fundamentals just aren't there to justify these prices. Some tidbits of information include that we are seeing Chinese imports of refined copper falling YOY and just recently Codelco, the world's largest producer, announced ~5% growth in production. London Metal Exchange stockpiles have been rising, but the article suggests that the inventory numbers are actually much higher than stated.

With prices at these levels this is a good time to be a copper producer -- but I'm not a buyer at these prices, simply because I don't believe that the price is justified by the economic fundamentals. As for investing/gambling directly on copper, for me a market driven by speculation, and now with the suggestion of asymmetric information re: real inventories, is something to be avoided.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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