Ill never forget visiting a Miami scrap dealers compound a few years ago. The proprietor showed me around his carefully tended lot.
On one end of the yard were piles of huge aluminum road signs. In another corner stood a wall of crushed-and-baled soda cans. But the owners proudest possession was kept in a secure little warehouse all its own.
He switched on the lights. There it was, gleaming a bright reddish glow in the middle of the room: one ton of bare bright copper thousands of strands of unalloyed copper wire, pressed into the shape of a massive cube. Per pound, its the most highly valued grade of scrap copper around.
The owner was waiting for better prices before shipping it off to an Asian smelter. I hope he didnt wait too long copper prices have done nothing but go down in recent years.
And forbiddingly for the U.S. and global economies, copper prices still have all the shine of a dull penny.
At the end of 2015, copper was selling for about $2.15 a pound. Today, its selling for about a nickel less. And thats with the tailwind of a weaker U.S. dollar, which helped boost oil prices by more than 30% and gold prices by 12% in the same period.
Chiles Antofagasta PLC, one of the worlds largest copper producers, recently estimated that the copper market has around 300,000 more tons of copper than it needs to move prices higher.
Chinas slowing economy bears much of the blame. Its demand for the red metal slowed to a trickle in recent quarters. In past years, roughly 40% of all the red metal produced by the worlds miners was bought by Chinas raw commodity importers.
But with copper prices down nearly 40% in the last two years (and more than 50% since the 2011 peak), copper traders have already discounted that information. Its not new to anyone involved in the global marketplace.
So what else might be keeping prices at their lowest levels since 2009?
The Federal Reserve, in dropping some big hints about a potential interest-rate increase in a few weeks time, is looking at measures of hiring and wages. Both are on the upswing.
Yet the overall economy is barely in motion. Americas GDP in the first three months of this year was an anemic 0.8% just a fraction above the 0.6% gain registered by the economy in the same period last year.
Could it be that the American economy isnt nearly as resilient as the Federal Reserve would like people to believe? (Sovereign Society members already know the answer.)
Could it be that the global economy remains very weak and at risk of still more pain?
Theres a reason why red gold is sometimes referred to as Dr. Copper among analysts and strategists. The price of the red metal is an EKG for the health of the global economy. When the economy is growing buildings are being built and new products are being made copper is in high demand. And when the economy has slowed, no one is demanding copper, keeping supply overflowing and prices depressed.
By that measure, the patient is still lying flat out on the table, with the timing of his recovery a very big question mark.
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A veteran investor and longtime financial journalist, JL Yastine is a contributor to Sovereign Investor Daily. He also serves as editorial director, focusing on creation and development of new products and editorial resources that will help the Societys members be Sovereign. Read more at The Sovereign Investor Daily.
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