What happened to my commodities boom? Didn't Jim Rogers promise me
wealth beyond the dreams of avarice, if only I believed? Well, no, actually he
didn't, and if you've been paying attention, you may notice that he doesn't like
everything all at once - lately, he's been focused on shorting the U.S.
financial market, and buying airlines and agriculture, with a side order of
continued bullishness on oil. He's quick to point to base metals when someone
accuses the commodities markets of being in a bubble, and as recently as May,
said he wasn't a buyer.
So what the heck is going on? What could be so bad in the base metals market
that even Jim Rogers is looking to airline stocks, and what we have to assume
was his most profitable trade in decades: shorting financials.
More than any other niche in commodities, the last six months in base metals
have been a story of Chinese demand. Let's start with copper.
Copper
Copper had a great run - if you managed to be long on New Year's Eve. The
dollar's seemingly endless decline boosted the price of anything priced in
dollars (not just copper), and those already-rising prices were kept in the
headlines because of labor problems: Strikes in April kept traders focused on supply coming out of Chile,
which is responsible for a large portion of worldwide copper supply. Countering
that (and thus, perhaps, trapping copper in its trading range) was increasing
evidence that the copper-supply crisis is over. The International Copper Study
Group released just this month says that 2008 should have surplus of
34,000 tonnes. And there are indications that the supply/demand imbalance in
China in particular is stabilizing: China imported 24% less copper in June 2008
vs. June 2007, despite the elimination of some of the export taxes that had been
keeping production in-country as much as possible.
Confused? Copper is in a state of flux. Worldwide demand seems to actually be
temporarily slowing down, but then, mine utilization has dropped as well, due to
labor and operational problems. The supply issues are likely transient - labor
disputes eventually resolve, equipment gets fixed. The supply issues are far
more troubling (if you're long copper, not if you're a plumber). Most of the
smart money seems to think that the big news is behind us, and thus copper will
trade based on news and fundamentals, with a default toward stagnation.
