It’s Time to Sell Copper

The Daily Reckoning ^ | 3-19-2013 | Greg Guenthner

[blam]

It’s Time to Sell Copper

By Greg Guenthner
03/19/13

Dr. Copper is crumbling.

The versatile industrial metal best known as a bellwether for worldwide economic growth has finally hit the skids…

I warned you last month that copper was fast approaching an important inflection point. Now, the Cyprus crisis was kind enough to tip copper over the edge. It fell hard in late Sunday trading from $3.50 to $3.44.

The massacre continued into Monday. When the dust settled, copper found itself nearly a dime below critical support…

Yet while the world economy appears poised for a slowdown, U.S. stocks continue to fight off lower copper prices for the past 15 months. The S&P has defied copper’s weakness since the metal peaked in 2011…

The price of copper had been dangerously close to crashing since the beginning of March. Now that its multiyear uptrend is in the rearview, we’re in store for lower prices.

Huge inventory surpluses have helped push copper lower. In London, copper stockpiles rose to 543,925 tons yesterday, the highest level in 3 years. In Shanghai, stockpiles climbed to 231,872 tons, the highest level recorded since 2003, according to Bloomberg.

If you haven’t sold copper yet, this key turning point is your cue. $3.30 is my initial downside target. If weakness persists, we could see copper test its 2011 lows near $3.

[blam]

[rockrr]

I knew that someday all that wire I stripped would come in handy ;-)

[MeganC]

Why sell it now when it’s going down? That’ll just drive the market down even further.

[hkusp40]

near-term looks almost ready to buy.
Long term, tough call. I am surprised that the increased demand for ammunition has not put support in place, unless their is an incredible stock of recycled copper we don’t know about.

[thackney]

Copper stolen from foreclosed homes is a fairly large supply.

[willgolfforfood]

Maybe you bought it at $2 and you decide it’s time to lock in some profit.

[soycd]

Good. It would be nice to be able to buy a spool of 12-2/WG without taking out a loan.

[babble-on]

Coincidentally/ironically the word “copper” comes from the Greek word for the island of Cyprus, or “Kupros” which was a rich source of the mineral in ancient times.

[blam]

Neat input....thanks.

[Big Red Badger]

How about SILVER?

[dfwgator]

A visitor from the future told me to invest in Zinc.

[blam]

[Big Red Badger]

buy , sell?
why is it stagnant?

[BlueMondaySkipper]

I was just reading that D’Aconia Copper mines was going to have a disaster tomorrow...

[blam]

I'm holding.

At some point....we'll have some serious inflation.

[yefragetuwrabrumuy]

I heartily advise people to not touch copper with a 10-foot pole, as it has long been a totally controlled market, that does not want outsiders profiting from it.

To cite a very good example, remember when the US went from thick copper cables to fiber optic? It ended up with enough surplus copper to build half a dozen aircraft carriers entirely out of pure copper. And what happened to the price of copper? Nothing. All that copper never reentered the market.

Sure, if you want to nickel and dime copper, feel free. But stay away from ambitious investments in it, or you will get cleaned out.

[Mich Patriot]

I have two rolls of these beauties that I'm holding just 'cuz I like them.

[Publius]

Ping. Look at the image in Post #18.

[USFRIENDINVICTORIA]

You've provided some of the analysis of the fundamentals I was looking for, to confirm the technical market analysis in the article. The technical analysis in the article does indicate a bearish market opinion about copper -- but, what do the fundamentals say?

I used to live in a copper-mining district & made the same point as you, about the switch from copper to fiber optic cable -- but, never considered that the market could be controlled. Can you point us to some solid evidence of the hoarding that would be necessary to control market prices that way. I know that the (jewel-quality) diamond market is controlled -- but, that gambit hasn't worked out very well in other commodities markets. (Recall the Hunt Bros. and silver?)

Another factor to consider is the switch from wired to wireless telephony. That may not have nearly as large an effect on copper demand in the developed world, as the switch to fiber optic cable; but, it seems to be effectively eliminating most opportunities to grow the market in the third world. Under-developed countries are installing wireless networks, and completely leapfrogging wired communications technology.

On the other hand; electric vehicles could boost demand for copper (when and if they ever become economically viable). Similarly, demand for electric generators of all types is set to continue growing.

Another source of demand for copper was created at about the time that fiber optic cables weakened demand for communications -- home wiring. For a time, it looked like aluminum was a viable substitute for copper wiring. Then, it became obvious that aluminum wiring was hazardous, and most people went back to using copper wiring.

The same could be said for many other uses of copper. There will always be substitution at the margin (as in any market). If the price of copper goes down, the demand will go up, and vice versa, because of the substitution effects.