There is some interesting news out of China that they may in fact re-export some of their copper stockpiles. Here is the link to the Bloomberg story “China May Re-Export Copper on Stockpiles.” While not a rally killer by itself this is pretty damning evidence that a major part of the rally in commodities came from Chinese stimulus buying. This was more bargain buying than an actual demand driven rally. This could lead to a good sized move down as demand has not picked up inline with supply and now China is not only done buying but may even start to sell.
As you an see in the chart below copper has been in a steady uptrend since the end of 2008 and the move preceded the rally in other risk assets that started in March 2009. The trend has been very consistent and is up about 130% in that time. On the chart below you can also see that as China has presumably stopped their buying we have seen a momentum divergence as the copper rally has slowed down. (click on chart twice to enlarge)
We would be wary of any move higher in copper and are currently looking at some possible shorts in the copper related ETF/ETN products JJC-Copper ETN and DBB-Base Metals ETF on a break of the trend line. If China which appeared to be the only buyer earlier this year, and is such a huge part of the emerging growth story, has too much then who is left to buy?
Disclaimer-We are not currently long or short any industrial metals but that could change at any time.
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Title: Did China Buy Too Much Copper