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Copper Holding on to Fiscal Cliff

By November 12, 2012

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The copper market could become an interesting market into next year.  Prices have had a slight negative bias to the downside since early 2011.  Was that the top in the market or just a consolidation before the long term trend resumes higher?

Copper was one of the first markets to begin the major bull market in commodities several years ago.  Much of the rally was due to staggering demand from China.  They are the largest user of copper and they have done some serious building in the last decade.

We now hear stories of huge stockpiles of copper in warehouses in China.  There is also talk they have overbuilt and there is no way they can acheive the same type of growth in the next ten years.  It is true there are warehouses with copper stockpiles, but most of what I have heard is that this copper is tied up as collateral on loans for a long time.  The supplies are unlikely to be dropped on the market like a huge bomb anytime soon.

There are also cities that have been built and they remain vacant.   That is a concern, but their economy is growing north of 7 percent and they seem to be progressing just fine.  They are also cash rich and they didn't undertake mortgages for no money down.  If there is a housing or infrastructure bubble, it will probably be minor.  It will probably only be a blip on the screen 20 years from now.

Focusing on copper prices, the market is nearing major support in the 3.25 - 3.30 level.  The fiscal cliff is a major concern and it is reflected in copper and stock prices.  China's economic numbers are looking better.  A return of more growth in China and a fix to the fiscal cliff could send copper prices much higher.  If the economy rolls over sharply, copper prices will continue to be under pressure, but it will be one of the first markets to turnaround on signs of economic improvement.

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