More Dismal Data

Copper Collapse: An Ominous Sign?

I've read analysis and heard it said that the price of copper, is itself, an economic indicator. It has been often observed that copper prices collapse as a leading economic indicator of an impending economic downturn. If that is correct, then the collapse of the price of copper this week is an ominously bad omen. Copper has collapsed in the past few trading sessions. Here is today's chart:

So while stock continue to rise without regard for any risk, this bellwether industrial metal is telling us to beware of a reversal sometime soon.
Note this quick summary from Reuters:

LONDON, Feb 22 (Reuters) - Copper slipped on Friday to its lowest level in
two months and showed its biggest weekly loss in 14 months on concerns about the
global economy and the demand for industrial metals.

Copper Unstoppable

These are the monthly and weekly charts.

But Copper Continues to New Record High

Copper was one of the few holdouts today.

Gold, Copper Find Their Footing

Gold

Copper

Commodities Surge to New Highs

Grains have hit new 2010 highs today, especially corn and soybeans. Gold is above $1400/ounce again, and silver is also surging. Sugar just hit a new 29-year high. Cotton, after a limit down move yesterday, just erased all those losses! Copper just hit a new high also. Livestock futures are setting new records today also. Inflation is here, like it or not!
NYBOT weekly, daily chart:

NYBOT monthly chart -- higher than 2008 high!

Copper's Continued Climb to New Record High

Commodities, Especially Copper, As Leading Indicator

from Doug Kass:
"The collapse in the commodity index is telling us that the peak in global industrial growth is imminent; it's here right now. Markets are going to have to deal with the reality of a slowdown."
-- Lakshman Achuthan, Economic Cycle Research Institute
Nevertheless, the month of May brought the largest drop in commodity prices since the failure of Lehman Brothers (when commodities declined by 55% in the preceding five months in 2008 and signaled the deep fall in U.S. GDP), raising the specter that worldwide economic growth will disappoint in the quarters ahead.
According to Bloomberg, the Journal of Commerce Industrial Price Commodity Smoothed Price Index, "which tracks the growth rate of steel, cattle, hides, tallow and burlap, plunged by 57%" last month. This index is usually a reasonably good tell on prospective growth as it includes a number of commodities that aren't exchange-traded and are therefore less apt to be controlled by speculators. As well, the index of 18 industrial materials "declined the most since October 2008."
Many pay special attention to the price of Dr. Copper -- the commodity is famously said to have a PhD in economics. This is not surprising, for as seen in the chart below, the correlation between copper prices and the S&P 500 is unusually high.

Commodities Deflate! Only Gold, Nat Gas Rise!

Natural gas always seems to march to a different drummer. It is skyrocketing on yesterday's EIA report. But if this deflationary trend catches on, it will likely deflate soon also. 

Grains -- deflation

Crude Oil -- deflation

Industrial Metals (Copper) - deflation

Gold rises

Natural Gas rises to its own drummer

Metals On Steady Course to Higher Prices

This is the weekly chart for copper. Palladium, platinum, silver, and gold have somewhat similar charts.

A Copper-Colored Disconnect

from WSJ:

Copper's continuous rally in the face of swelling inventories -- a sign of weak consumption -- has perplexed many in the market.
Copper stockpiles at London Metal Exchange warehouses are at their highest level since April. In China, the world's biggest consumer of the metal, copper stocks have risen sixfold at the Shanghai Futures Exchange this year. And at Comex, the metals division of CME Group, stocks are their highest level since August 2004.
Yet, copper soared 5% last week...

I wonder if this disconnect is occurring in sympathy with gold, or if it is a flee to hard assets because of worries about the debt bubble.It appears to be an "anything but fiat" money trade!

Copper Limit Down

Aug. 17 (Bloomberg) -- Copper and zinc futures in Shanghai dropped by the daily trading limit following declines in London prices.

Copper fell 5 percent to 47,790 yuan a metric ton and zinc tumbled 5 percent to 14,465 yuan a ton

Copper Turns Bearish

John Mauldin, in his newsletter, had recently mentioned that China, in its distaste for the Dollar, has stockpiled monstrous amounts of copper. However, it has warehoused so much of the stuff that there is now a global copper glut. The price is already starting to fall! I got a sell signal on my charts today!

From Bloomberg:

Copper’s 80 percent rally this year may soon end on signs that China has stockpiled more than it can use in new homes, cars and appliances.

Inventories monitored by the London Metal Exchange posted their first back-to-back weekly gains since February, increasing 8.6 percent from an eight-month low. Sumitomo Metal Mining Co., Japan’s second-largest smelter, said Chinese imports are slowing after record purchases boosted domestic supplies, and U.S. copper-scrap exporters report shipments to Asia are dropping.

Prices will also decline because the 4 trillion yuan ($585 billion) of economic stimulus spending by China, the world’s biggest metals user, won’t make up for weak demand elsewhere, said Michael Pento, chief economist at Huntington Beach, California-based Delta Global Advisors, which manages $1.5 billion. The global economy will contract 1.4 percent this year, deeper than forecast in April, and a sustained recovery from the worst recession since World War II may be a year away, the International Monetary Fund said July 8.

“I’m looking for a pullback right now in copper,” said Pento, who correctly forecast in January the price would rise at least 77 percent this year. “Base metals have just gotten overextended as people bet on the China story. Investors should exit this market now as the price comes down to match reality.”

The metal for delivery in three months jumped to $5,646 a metric ton ($2.563 a pound) on July 27 on the LME, the highest price since Oct. 8, and traded at $5,470 a ton today. Copper has rallied more in 2009 than it has in any year since 1987.

On the New York Mercantile Exchange’s Comex division, copper futures climbed to a nine-month high of $2.579 a pound, topping Pento’s January forecast of $2.50 by year-end.

‘Likely to Fall’

Refined copper imports by the Chinese more than doubled to 1.78 million metric tons in the first half and reached a monthly record of 378,943 tons in June, customs data show.

“China’s copper imports are likely to fall in the second half of this year because it bought so much in the first half, the government has stopped buying and demand from end-users may not be as big as people anticipated,” said Zhao Mingwang, manager of futures trading at Zhuji, China-based Zhejiang Honglei Copper Co., which produces about 100,000 tons of wires and rods a year. “The imports were so large it’s hard to fathom where it all went.”

Most of the gains in LME-monitored inventories during the past month reflect the eightfold jump in the volume of material in warehouses in Singapore and South Korea, the closest to China.

Copper - New High for 2009

China Dumping Dollar and Treasuries... for Industrial Metals Instead

from the Daily Telegraph:

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America's debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. "We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets," he said.

Note: While it is expected that global demand for copper will fall 15% this year, the price has risen 49%!

Copper: Up, Up, and Away!

Stratospheric Commodities Prices!

Soybeans are beginning the day session today at all-time high prices. Sugar, cotton, crude oil, gold, platinum, coffee, cocoa, wheat, copper, and various other commodities prices are all significantly higher. Inflation is on the march! This chart for soybeans shows prices only since last night, but it is typical for commodities almost universally.

Only the U.S. Dollar continues to sink!