Who's Chasing Copper At Nosebleed Levels?

Quote from dhpar:

It makes perfect sense. Metals are very cheap when you consider things like liquidity and (re)building of infrastructure around the world (and if you think longer term).
For instance I remember seeing estimates of copper consumption for the next few years if China rebuilds its electricity network. These numbers were just <i>insane</i>.
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I know of a big manufacturer of cables in Europe who is in big difficulties because of the high copper prices.
His competitor works with glass fiber and is taking over all the clients from the copper cable company as the price difference shrinks and fibercables have in certain applications huge advantages.

When prices are high other options can influence the demand. People will look at alternatives to escape the insanity.
So there are arguments pro and contra high prices for the future. The difficulty is to calculate the net difference between both on a longer term basis to predict the future prices.

About the calculation of China's demand of copper. You have to see the basis of the calculatoin, before you can judge if these calculations are correct.
If a couple divorces and the wife wants to keep the house; the estimation of the house will result in a high price if calculated by the man, and in a low prices if calculated by the woman. 2 different prices for the same house.
 
Quote from spike500:

....So there are arguments pro and contra high prices for the future. The difficulty is to calculate the net difference between both on a longer term basis to predict the future prices....
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I agree with that - that's why we can make money in the markets. :cool:
 
The following is a thread I started :Why is copper so strong? under Metals Futures

My comment addresses the condition when the nearby futures is trading at a premium. It is a rare condition, Not hot air but physical demand is holding prices up.



03-20-07 06:30 PM

Commodities and even the underlyings for financial futures have carrying charges.
For the convenience of holding and selling to you the cash copper at a future date they add storage costs, insurance, the cost of money and a bit of profit. That is why December ES is selling for more then September and September is selling for more then July.

So the normal relationship is: Cash is cheaper then nearby and nearby is cheaper then the further outs. This condition is called Contagno (look at the Gold futures or YM or Cocoa for current examples) and when it is upside down it is Backwardation. Check my own description in Wikipedia.

There are people who own metal in warehouses who keep hedging it in futures and earn the carrying charges.
It is a way to make a living. When the spot copper cost more then the nearby futures they can't hedge their inventory and this alone creates an uneasy situation.
But for the buyers it is worse because if they buy it at a premium at this price they can't hedge it or hedge it for less.
In spite of the uncertainty for all involved the price refuses to go down. This condition is usually created when some entities siphon off all deliverable copper and it can't be replenished fast enough.

This is a rare condition and it is worth paying attention to. I would not be surprised that people who supply the Chinese are gobbling up all that is available. It is even more significant that this is happening during a slowdown in the US housing market.

I just thought we would hear from someone in the biz.

Don't dismiss the .17/lb cents premium because nearby at premium is like an indicator of fever. Every single mega move starts out with this condition.

GC
 
Who's Chasing Copper At Nosebleed Levels? Momentum traders like me. I bought LME 3-month forwards for 75 tonnes of copper on 23 March 2007 -- entering a long trade well after the first uptick on 02 Feb, which is symptomatic of momentum trading. Whether I exit the trade at a profit or a loss, obviously remains to be seen.


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I forgot to mention above that producers are under hedging their output during these conditions.

There is tremendous pressure to keep up with the Joneses. Some crazy guy is not hedged and he is a hero and another who is fully hedged is a laggard.

This goes on in all the commodity markets and this is why for example when silver and gold are moving up the various company's stocks respond at a different rate.

I don't have the patience to ferret this out but some people do.

Regards,

GC
 
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