A recent report from analysts at Goldman Sachs told clients that the recent pullback in commodity prices was a gimme -- at least on a 12-month view. It was a perfect time to get long certain commodities including oil, copper and soybeans.
Within their bag of recommended goodies are crude oil, which they say is heading for a 37% increase to $85 per barrel before we reach 2010. Meanwhile soybeans, one of the products we wrote about in our July issue of Global Resources Alert, will rise 15% to $10.50 per bushel at the same time.
Goldman Sachs expects London copper prices will grind 10% higher to $5,800 per ton thanks to Chinese demand. The industrial metal trades on exchanges in Shanghai, London and New York. Shanghai traders bought fistfuls of copper earlier Thursday following news that China grew 7.9% in the second quarter. Speculators there can see first hand the demand for infrastructure projects engaged by the government's stimulus plan. Copper imports climbed to a record level in June according to customs office data at the Shanghai exchange. Meanwhile a decline in stockpiles leaves investors in no doubt that locals are actively using raw copper.
Deutsche Bank calculates that the brimming factories and warehouses inside China together hold the equivalent of around one month's global consumption. During its accumulation phase the State Reserve bureau has amassed reserves of a staggering 235,000 tons, which, says the Wall Street Journal is around the same as what the London Metal Exchange holds in order to back trades made by investors and brokers trading though it.
Data for the first five months of the year shows a 20% boost in investments in electricity and heating output and supply infrastructure, which accounts for 48% of the overall demand for copper. It appears that with a recovery on track, copper prices have only one direction leaving buyers clamoring for more. But of course there's always more than one voice of reason.
According to GFMS Metals Consulting, the copper boom isn't likely to last throughout the summer. The Chinese influence on prices is likely to run its course soon and physical demand elsewhere remains static, they say. They note that this year's Chinese stockpiling was partly brought on by arbitrage opportunities, which will soon dissipate. Of course, all it took was the smokescreen of a successful stimulus and the appearance was for global recovery, made in China.
State buying of copper has likely run its course and the speculative money is now what's pushing prices up. While copper is now more expensive, the state's buying spree is likely done precisely because prices have moved its way.
It remains difficult to parse the situation. The Chinese in retrospect did a smart thing sucking up as many raw materials as they could when prices were slipping and the global economy falling apart at the seams. Industries weren't producing and so were destocking, further hampering an already limp demand element. But now, rosier times have emerged, making the sizeable purchases look like a stroke of genius.
According to the WSJ the debate has cracked open a schism amongst analysts who predict that by year end pries will either rise 37% to $7,000 per ton or fall 31% to $3,500.
The Secret Order of Jurojin follow macro commodity, resource, currency and bond catalysts and brings its readers regular futures trades in Jurojin Weekly and monthly agricultural plays in its Global Resources Alert at www.jurojinweekly.com.
