One thing is for sure, when Dr.Copper’s price is falling, the silence from prognosticators is deafening; but when it’s rising it is the greatest indication of the global growth narrative the world has ever known. However, there’s a hole in that story…

LME Copper prices are up for 9 straight days – the longest winning streak since 2004 – (and 13 of the last 14 days) pushing prices above $7,200 intraday – the highest since 2014…

And given copper’s rip higher relative to gold, based on DoubleLine’s Jeff Gundlach’s favorite chart, 10Y yields should be drastically higher to reflect this implied growthiness…

 

There’s just one problem with this whole narrative – it’s not a desperate demand pull from rapidly growing economies that is charging prices higher… its a collapse in supply…

As Bloomberg reports, China ordered its top producer to halt output to combat winter pollution…

The advance in 2017 has been backstopped by supply disruptions just as the outlook for global growth improves and investors and miners target potential new uses, including in electric vehicles. The world’s largest producer, Chile’s Codelco, has forecast that prices may test record highs above $10,000, while UBS Group AG’s wealth management unit on Wednesday predicted further gains.

“Supply cuts are set to boost prices in the short term, while further upside beyond $7,200 before the Lunar New Year might be limited,” Pu Honggang, an analyst with ITG Futures Ltd., said from Xiamen, referring to China’s nationwide break that falls in February next year.

“It’s still pending that supply will be shrinking to what extent, while domestic demand is very weak at year-end.”

Copper’s latest leg up follows news that Jiangxi Copper Co., China’s largest producer, had been ordered to stop output for at least a week before a further assessment based on local pollution levels. Earlier in the month, the No. 2 smelter, Tongling Nonferrous Metals Group, was asked to make similar cuts.

Print Friendly, PDF & Email

Related Posts