Copper prices

[Team Sergeant]

hey nmap,

Is the huge drop in copper (the last three months) tied to the housing industry? And can we expect to see other metals dropping in price?

TS

[rubberneck]

Cooper used in construction accounts for nearly 50% of usage here in the states but a drop off in construction is only one of the causes for the price drop over the past 6 months. Demand in China has tailed of significantly as their economy has contracted at a rate faster than ours, but more significantly the labor strikes that crippled Chilean Copper Mines (Chile accounts for 35% of the worlds copper production) for much of 2006 and 2007 have been settled.

Aluminium, zinc, lead, nickel, tin and steel are all down significantly over the past 6 months, as are precious metals (Gold, Platinum, Silver and Palladium).

[Defender968]

If the price of metal continues to fall, maybe ammo prices will start dropping as well, if of course the Dims don't tax ammo to death.

[Team Sergeant]

Originally Posted by rubberneck

Cooper used in construction accounts for nearly 50% of usage here in the states but a drop off in construction is only one of the causes for the price drop over the past 6 months. Demand in China has tailed of significantly as their economy has contracted at a rate faster than ours, but more significantly the labor strikes that crippled Chilean Copper Mines (Chile accounts for 35% of the worlds copper production) for much of 2006 and 2007 have been settled.

Aluminium, zinc, lead, nickel, tin and steel are all down significantly over the past 6 months, as are precious metals (Gold, Platinum, Silver and Palladium).

Here in Arizona theres been a layoff of six hundred copper mine workers in the last few weeks due to the price of copper.
In just the last three months copper has gone from 3.50 to 1.50 a pound. The housing crunch has been around a bit longer. I was wondering what has affected the price so significantly in just the past 90 days?

Originally Posted by Defender968

If the price of metal continues to fall, maybe ammo prices will start dropping as well, if of course the Dims don't tax ammo to death.

I had the same thoughts.......

[Sigaba]

nmap--

An additional question. We in California are getting almost daily news reports of copper being stolen from every conceivable source (including graveyards--what is wrong with people?).

Is the black market for copper so pronounced that it can impact demand in the legal market?

[Team Sergeant]

Originally Posted by Sigaba

nmap--

An additional question. We in California are getting almost daily news reports of copper being stolen from every conceivable source (including graveyards--what is wrong with people?).

Is the black market for copper so pronounced that it can impact demand in the legal market?

We had the same problem here in Arizona, so bad that some of the thieving idiots decided to hit local electric substation to steal copper wiring. Not a smart move I saw the "after" pictures.

With the price of copper hitting bottom maybe this will all cease and the bad guys will go back to armed robbery

[rubberneck]

Originally Posted by Team Sergeant

Here in Arizona theres been a layoff of six hundred copper mine workers in the last few weeks due to the price of copper.
In just the last three months copper has gone from 3.50 to 1.50 a pound. The housing crunch has been around a bit longer. I was wondering what has affected the price so significantly in just the past 90 days?

Look at a graph of the Dow Jones Industrial average since September 22nd 2008 and compare it to a graph of the spot price on copper for the same period. They have moved in unison for the most part. It started with the news of the failure of Lehman Brothers on the 15th, then on the 21st the troubles at AIG came to the surface and we were off to the races on the 22nd across the board. The drop in the price of Copper, as a commodity, has been market driven since then.

[caveman]

Well I guess I'm glad my family's barn burned down last summer then. I went home for the weekend to help clean up and made something like $250 dollars picking scrap metal out of the rubble.

[nmap]

Originally Posted by Team Sergeant

hey nmap,

Is the huge drop in copper (the last three months) tied to the housing industry? And can we expect to see other metals dropping in price?

TS

Team Sergeant, there are those who suggest that copper prices are a good way to measure the health of the entire global economy. Copper is also used for electric motors and generators, transmission lines, and so forth. The big shovels used in coal mines use electric motors.

Uses and production of copper

Largest electric coal shovel

So it's not just housing - it's housing plus everything else.

Here's a long-term chart of the price: Chart Link

Each line is 1 month of price action. We've come down by about 60% - and we're still high compared to prices over the last decade! Trends persist, so the question becomes: "When will the global economy recover?" I have a nasty feeling that it will be awhile. That suggests the answer on other metals is that they will continue down for a time. For example, the catalytic converters on cars require platinum - so the reduced demand for cars has taken about 60% of the value off that precious metal as well.

This is complicated by the increased value of the dollar. You can see what's happening HERE. Notice that it has broken the blue trend line. The dollar tends to be a safe haven during dangerous times - and, in addition, many debts are denominated in dollars. So as the dollar goes up, metals go down - for that matter, all commodities tend to go down.

Unless and until the global economy shows signs of improving, metals are likely (in my opinion) to continue lower. Right now, there are opinions that the global economy may improve, but there is almost no hard evidence.

There are dark rumors that Ireland's banks are going the same way as Iceland's - and if that happens, the global economy will take another shock. It won't recover quickly, and we could go over the brink into long-term deflation.

Sigaba, I don't think that theft can change the supply-demand equation much. On the one hand, stolen copper increases supply - but on the other hand, the items stolen generally must be replaced. If the stolen copper represented something that wasn't being used - in essence, recycling by alternative means - then it might have some minor positive effect. However, I get the impression that isn't the case.

And yes, it just might put downward pressure on ammo prices. Maybe that's the brass lining on the deflationary cloud?

[nmap]

By the way...I just finished reading the attached newsletter from Dow Theory. It's along the same line as the thread, and the author (age 84) has been publishing for 50 years. I've attached a copy.

Whether he's right or not, there are some ideas worthy of consideration.

[Defender968]

Originally Posted by Team Sergeant

We had the same problem here in Arizona, so bad that some of the thieving idiots decided to hit local electric substation to steal copper wiring. Not a smart move I saw the "after" pictures.

That's what I call a self correcting criminal, good riddens.

Originally Posted by Team Sergeant

With the price of copper hitting bottom maybe this will all cease and the bad guys will go back to armed robbery

The guys here who steal copper here aren't motivated enough to pull off armed robberies thankfully, they're more the B&E type, but as copper was so high you almost had to have armed guards on any vacant building, and the nice houses downtown with copper downspouts. I bet if I check the stats here the B&E rate will go through the roof, freaking crack heads

[Team Sergeant]

Thank you nmap. Coppers sharp decline now makes much more sense.

OK, now if copper can be used as the "barometer of international business activity" what should we be watching as an indicator for US/global depression? (Today's stock market seemed to be a pretty clear indicator.....)

[nmap]

Originally Posted by Team Sergeant

Thank you nmap. Coppers sharp decline now makes much more sense.

OK, now if copper can be used as the "barometer of international business activity" what should we be watching as an indicator for US/global depression? (Today's stock market seemed to be a pretty clear indicator.....)

It is a good indicator...here are four items I keep track of.

1) The Wilshire 5000 index. It's the most broad of all the indicies. If you look at the chart, WLSH link, you will see a decline from a high of 14,564 to tonight's value of 8,014.25. The Wilshire 5000 is denominated in dollars, meaning our economy has seen about $6.5 trillion dollars cease to exist since mid-May. At an absolute minimum, the index needs to turn up. For a short term (time frame: weeks) indication, look at the blue and red lines. These are 13 and 34 day moving averages, and an uptrend starts when the 13 day average goes above the 34 day average.

For a longer term perspective, consider the SP 500 on a weekly basis, with 20 (blue) and 50 (red) week moving averages. LINK. When the 20 goes above the 50, we should have a long term uptrend in the market, which implies the economy should do so as well.

In general, the markets anticipate the economy 6 months in the future. So, at this time, May 2009 is looking grim. By the way - I believe the links I supplied update, so they can be viewed in the future with fresh information.

2) The Baltic Dry Index. This is an index of the cost of shipping for dry goods - everything from iron ore to wheat. BDI Link, you'll see that it has declined from 11,793 to 859. This suggests that global trade is down a lot. Given the involvement of the U.S. in global trade, and the foreign involvement of our corporations, we need to see a recovery. That may take awhile, since (supposedly) banks are hesitant to issue letters of credit - and letters of credit make it possible for a seller to ship goods to a buyer and be assured they will get paid.

3) Is a little harder to get. The publication Barron's, in their weekly market lab section, publishes something called the "confidence index". It compares the yield on high grade bonds with the yield on medium grade bonds each week. A high index means people feel comfortable with riskier bonds. A low index means people are afraid, and want very secure bonds, even if the yield is low.

This week's index is 55.3. Last week's was 59.0, and a year ago it was 80.2. We need 80.

4) T-Bill rates. These are available on the internet at LINK. The 3 month rate is 0.06%. That's so close to zero, the owner might just as well put the money in a buried fruit jar. It suggests people want safety of their money far more than they care about yield. At least 1% would be better.

Our problem is (in my opinion) that we don't know how bad the credit problems are. How much are the various structured investments really worth? Are corporations insolvent? How bad is the bad news? These are rhetorical questions, because we have no information - but people cannot invest or lend money with confidence unless and until they know.

For now, we are going to see increases in unemployment, leading to reductions in spending, which will then force more businesses to shrink or close. The cycle will continue until we reach equilibrium (no one knows where), and then the recovery will begin.

Those countries that depend on commodity exports (Saudi Arabia, Mexico, Russia, and a host of third world countries) are going to experience financial hardship. Those that depend on exports of manufactured goods (China) may be in the same boat. If they cannot pay their loans or borrow money, what happens? (Rhetorical question, but I suspect the result will be unpleasant). If we see more failed states - Pakistan perhaps? - what are the implications for future stability and recovery (Again, rhetorical - but any recovery needs stability as a foundation).

Hopefully, the indicators will improve soon...but...there is no basis for predicting they will at this time. If the situation continues much longer, we will start being justified in using the term depression.

[Ambush Master]

For the last several years, All metals and Portland Cement prices have been driven upwards by the massive Hydroelectric Dam projects in China!! I believe that those should be drawing to a close!! With the combined economic issues today, and a reduced requirement in China, we may be entering a more stabalized market. The only problem, is how long it will take for all of the swells to settle down!!

[jatx]

I've completed detailed modeling on about 100 mid-cap firms over the past month, and have been fortunate enough to sit down with the CFO's of a number of those. Bear in mind that the most recent data publicly available for valuation purposes is from Q3, so it only goes up to the end of September.

That being said, many good companies with strong competitve positioning are headed toward the wall. Accounts receivable as a percent of sales ballooned during Q3 from the typical 10-15% range for many firms to around 65-75%. Counterparty credit risk is very, very real right now - companies are all attempting a beggar-thy-neighbor approach to preserving cash and are simply not paying their debts. This stretching out of terms typically precedes a period of reduced sales, so the Q4 numbers are likely to be much worse.

Businesses don't fail because of a drop in their stock price, they fail because they run out of cash - and many are going to do just that before next summer. Also, keep in mind that most Americans don't work for Fortune 500 companies - if they are in the private sector at all, they work for small- and mid-size public firms and the private companies who exist in an ecosystem around those. Q4 earnings could be the shock that sets off real increases in unemployment.