Doctor Copper's Huge Surge. Real or Chinamax?

For those born after 1980 there used to be this thing called a VCR, and.... well nevermind.  Older folks will understand the title.

Certainly, having an economic background you'd think I'd be a defender of Economists.  Nah, as they - say if you put 9 economists in a room you will get 15 opinions.  And much like sell side analysts they love to travel in packs.  That way if they are wrong, they can be wrong together and it is much harder to get fired.  "Hey everyone got it wrong".  That's why the few outliers like Nouriel Roubini and that guy TraderMark who were early and adament on the downfalls to come in the face of ever present Kool Aid in latter 2007 ("Don't Fight the Fed" "If your doomsday is so smart, why is the market at all time highs??") have at least some credibility.  Although Roubini gets a lot more chicks.  But I digress...

For stock market participants, many like to use copper as the true economist... in fact to such a degree many call her Doctor Copper (PhD).  She never tells a lie - or does she?  The red metal has been surging and with its inclusion in so many products, when prices surge the stock jockeys go to the familiar playbook of "recovery around the bend".  Normally, I'd agree.  Historical precedent says so.  But we're entering a new age - the Chinese age.  China's purchases have been increasingly important to the world the past half decade, and at this time, with global trade / growth especially flaccid, anything China does leaves a huge footprint.

Shall we review? China was stockpiling iron ore a few months back, this caused a short lived surge in the Baltic Dry Index (a shipping rate price index) - all the world was saying this must mean recovery. I did a little homework and said "nah" - just the Chinese [Feb 9: China and the Baltic Dry Index - What's Really Going On?] Then oil surged all the world was saying this must mean recovery.  I did a little homework and said "nah" - just the Chinese [Mar 9: Reuters - China Government Oil Reserve Full]  Now copper is surging and all the world is saying this must mean recovery.  Well you know what I did. [Mar 23: FT.com - Chinese Stockpiling Spurs Copper Price Rally]

Guess who?  But we can never let facts get in the way of a breathless thesis to run stocks up with talk of "green shoots" sprouting like weeds. But let me say, what the Chinese are doing is excellent - they buy low, they are stockpiling, they are taking a long term view.  Lessons we could learn from, but we're too busy making sure Goldman Sachs is taken care of.  Priorities folks. 

So is copper the great economist she always has been?  Or simply China's mistress? We'll only know by looking back in 6 months but I vote latex wearing whip wielding red devil. (not that there is anything wrong with that)  Oh uh here she comes; watch out boy she'll chew you up. 

FT.com chimes in 'Duration Doubts Over Base Metals Bounce'

• Spring appears to have sprung in the base metals sector as a powerful rally has lifted prices for copper, lead, nickel and tin sharply higher, leaving investors who had bet that weaker economic growth would push prices lower shouldering big losses.
• The strength of the rally – copper is more than 40 per cent more expensive now than at the beginning of the year, for example – has not only caught some traders by surprise; the mining industry is also astonished because it comes in the face of collapsing industrial output and construction activity worldwide. 
• Some analysts are warning that the rally – which has lifted all metals barring aluminium and nickel – has run too far too fast. “This current base metals price rally looks to have little in the way of fundamental support,” says David Wilson, a metals analyst at Société Générale in London.  “The bulls have bolted too early,” Mr Wilson adds, echoing a view widely held among traders, analysts and mining executives.
• Most market participants agree that the rally appears supported by a mix of temporary factors, particularly Chinese buying of copper and other metals for its strategic inventories in January and February; a lack of scrap supplies as current prices are not attracting enough recycling; and some investors closing previous bets on falling prices, a trade known as short covering. Some believe that as those factors vanish, prices could fall sharply.
• Industry executives familiar with Beijing’s State Reserve Bureau say China bought about 300,000 tonnes of copper for its strategic reserve in the first two months of the year, when the price of the red metal traded consistently below $3,500 a tonne.  But the executives add that the SRB rejected offers to buy more stocks once copper prices surged above $3,500-$4,000 last month. Copper peaked at $4,925 a tonne last week, trading on Tuesday at just below $4,500 a tonne.
• Whether prices can be sustained, therefore, will depend on demand. But analysts and executives say consumption is unlikely to support prices at their current levels.