Base Metals Bomb, China no Longer Seen as Savior
Nov 12th, 2008 | By Doug Casey | Category: Financial NewsThe base metals were all deep in the red on Tuesday. Copper had another day of incessant down, with each tiny upblip met with immediate selling, leading to a finish barely off its intraday low at $1.5997/lb., down 10 cents. Nickel followed a similar path, except that it didn’t manage to escape its intraday low, closing right there at $4.6531/lb., down 29 2/3 cents.
Zinc meandered around either side of 49 cents, ending up a half-cent, at $0.4893/lb. Aluminum was weak, dropping a penny and a half, to $0.8494/lb., while lead also plunged to its intraday low of $0.5724/lb., down nearly 3½ cents.
Copper tumbled to a three-year low as it led the sector downward amid—cue broken record—deepening gloom about the global economy.
The data are simply offering no relief. Among yesterday’s numbers, along with the October exports figure from China, the U.K. reported that home sales fell to the lowest level in at least three decades.
“Grim recessionary stats continue to roll in from all corners of the world,” wrote Edward Meir, of MF Global. “We do not expect to see any sustainable rallies resulting for a period of time.”
Putting a further damper on any hopes that China will show the way out of a worldwide recession, the vice president of the state-controlled China Nonferrous Metals Industry Association warns that China’s stimulus plan will only have a gradual effect on the country’s base metals industry.
Rising stockpiles are also playing in. Copper inventories monitored by the LME shot higher by 4,625 metric tons yesterday, to 265,475 tons. Stocks are up more than 27,000 tons already in November.
Adding to the carnage, the sharp drop in equities markets yesterday had a negative effect, as commodities tend to correlate with them.
Source: Base metals bomb - China no longer seen as savior
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Doug Casey is a contrarian investor, sought-after public speaker and author of several books. His work "Crisis Investing" held the position of # 1 bestseller on the New York Times list for 26 consecutive weeks. Doug's unusual views on the economy - and just about everything else - have gained a huge following in the investment community, and it certainly helps that his stock recommendations of undervalued junior exploration companies have made his subscribers millions. Now in its 27th year, Doug's monthly newsletter, the International Speculator, is one of the most established and esteemed publications on gold, silver and other natural resource investments. Together with the Casey Energy Speculator, it covers a broad range of carefully selected stocks with the very real potential of double- and triple-digit returns within 12 to 24 months.
I think a more positive outlook is required.In fact if you are a contrarian investor, I would expect you to now start buying copper producers such as BHP Billiton and Rio Tinto, as well as thinking about going long the metal itself.
The decision by the Chinese government to introduce a $586 biliion stimulus package over two years should be a huge boost and I would expect copper inventories as well as other base metals stockpiles, such as aluminium, to start to fall as these projects come on line.