dtblount

What Does Dr. Copper Think of the Economy?

I think copper is still a great indicator of the global economy; however, recent Chinese SRB buying has obfuscated this a bit. The SRB announced they will buy roughly 600kt - 1mt of copper over the next three years, which, if spread across the three years evenly, accounts for about 2% of annual global copper demand. The SRB made heavy purchases in Q1 2009 (at least, according to bank info, they are 30% "ahead of schedule" on purchases for the year) and it looks like the SRB could either be selling some copper (according to some reports from sources I don't really trust...Xinhua, etc.) or pausing with further purchases.

Either way, SRB buying has slowed the momentum of copper's climb, so I am expecting a shorter term pullback over the next two months or so...then a continued climb as 1) global economy begins to recover, 2) SRB begins to buy again, and 3) bottleneck with mining firms having less access to credit and less cash on hand due to 2008 collapse in commodity prices leading to scaled-back mining operations, less exploration, and fewer mine openings.

That aside, diversifying from USD and UST holdings is an excellent idea for China for several reasons: 1) diversification, when you are essentially a massive pension fund, is ALWAYS a good idea, no matter the risk, 2) raw materials priced in USD are a direct use of China's USD reserves, so fewer political issues, and 3) China needs/will need raw materials of all kinds, so stockpiling the basics makes sense for a growing economy.

I like copper and have been in JJC since late February.