6 replies to this topic

[flyers&divers]

I posted this on an other board but I thought it would also be topical here. Soon or later we are going to face shortages of food and basic materials. The worlds poulation almost doubled since we had roaring bull markets and commodities in the seventies and so to speak the population in some very pouluous countries is upgrading their lifestyles. There is a special condition in the Copper market which is pointing to much more on the upside. If a trader followed this market during this process they may recognize similar conditions developing in other commodities. Commodities and even the underlyings for financial futures have carrying charges. For the convenience of holding and selling to you the cash copper at a future date they add storage costs, insurance, the cost of money and a bit of profit. This is called the carry. That is why December Gold is selling for more then September and September is selling for more then July. So the normal relationship is: Cash is cheaper then nearby and nearby is cheaper then the further outs. This condition is called Contagno (look at the Gold futures or YM or Cocoa for current examples) and when it is upside down it is Backwardation like in Copper . (Check my partial contribution on this in Wikipedia.) There are people who own metal in warehouses who keep hedging it in futures and earn the carrying charges. Before delivery time they roll into a further month. It is a way to make a living. When the spot copper cost more then the nearby futures they can't hedge their inventory and this alone creates an uneasy situation because they are carrying inventory without the ability to pay for those expenses. For the buyers it is worse because if they buy it at a premium at this price they can't hedge it or hedge it for less. Users have to fill their immediate needs. Copper for further out dates is cheaper then for what they can buy it today but they need it now so they pay whatever they have to. In the meantime producers are pumping out copper as fast as they can to take advantage of the juicy price structure. Also some of them forgo hedging when they see the strength. In spite of the uncertainity for all involved the price refuses to go down. This condition is usually created when some entities siphon off all deliverable copper and it can't be replenished fast enough. If some well to do players like hedge funds loaded up they would just exascerbate the situation. This is a rare condition and it is worth paying attention to. I would not be surprised to find out that people who supply the Chinese and India are gobbling up all that is available. It is even more significant that this is happening during a slowdown in the US housing market. Don't dismiss the .017/lb cents premium that May is over July. While it loks miniscule, nearby premium is like an indicator of fever. Every single mega move starts out with this condition. I have no projections or handle on this. Pick a wild number and double it. A market like this can go fivefold because temporarily reason or gravity are preempted by urgency. Regards, F&D

Edited by flyers&divers, 20 March 2007 - 01:12 PM.

[hiker]

ty, F&D

[Cirrus]

Very good post. The commercials are long copper which is historically unusual. Furthermore, prices have been going up as the US housing market and residential construction has weakened quite a bit. This is very counterintuitive if you're a long time follower of commodities. It says a lot about the world which we now live as I believe your post did a great job addressing this. IMHO our residential RE market will not 'crash' as much as many expect. Bulding cost will rise quite a bit the next five years, IMO, as inventory bleeds off over the next few years. Some areas should be much harder hit than others, though. Two of my favorites are BWR.TO and QUA.TO. Check them out. BWR.TO moving to 5+ by the end of this year would not surprise me--and it would still be cheap. FWIW BWR is a zinc player while QUA is more copper oriented. There are plenty of really nice looking weekly charts in the mid cap general mining group. RNO, FCX, RIO, BLE.TO, FM.TO and KAT.TO are some for the watch list. I also like precious metals miners like NG, SA and NAK as they are prime candidates for a buyout as the commodity bull progresses. They have exposure to gold and other metals and have reserves per market cap ratios that are IMO unparalleled. Their weekly charts are really attractive and there's enough liquidity for breathing room.

[pdx5]

I am NOT surprised copper is going up. It has much more industrial use than gold. The US market with or without housing is no longer the dominent market in the world. I don't recall the exact numbers but China used something like twice the amount of concrete last year than United States. China and India are on a road to huge industrial expansions. Both have more people resources of workers than the rest of the world combined. The Indians can not produce enough goods to satisfy even the local population of growing middle class. Expect both economies to keep growing at double digit rates for many years. The result is that INDUSTRIAL commodities will be in high demand for several years ahead.

[PorkLoin]

Don't dismiss the .017/lb cents premium that May is over July. While it loks miniscule, nearby premium is like an indicator of fever. Every single mega move starts out with this condition.

YEAH BABY

[arbman]

Which ones are you buying?

Copper stocks

[PorkLoin]

Only one I have. Large copper & gold deposit in Canada. Supposed to be in production in 2011. Speculative, not for the faint-of-heart blah blah blah, but been great so far. I do not think it's the greatest buy right now -- looks ripe for a correction to 1.00....0.90?

More risky but compared to the big-cap stocks I think vastly more potential for multiplying the share price.

Doug