With the China PMI indicating a contraction in GDP growth (of which I talked about here), another sign has emerged of China slowing down.
The LME Copper Warehouse Stocks Level has started a trend change and is actually rising (chart 1). This build in inventories is probably indicating a slowdown in the Chinese economy. A part of this build is due to Chinese markets staying shut for a public holiday on Wednesday, April 4, Qing Ming Festival. Shanghai reopened on Thursday.
The trend change coincided with one of the biggest drops in a year in gold and silver after Ben Bernanke indicated no QE3 was necessary due to a stable economy.
Table 1 lists the top 10 countries based on copper demand. Keep in mind that China's copper demand was only 3.5 million tonnes/annum in 2005 and has now more than doubled to 8.4 million tonnes/annum in 2012. Considering the fact that China is now the largest consumer of copper in the world, China's economic conditions will have a big impact on the copper price and global commodity prices in general.
Table 1:
Country | Demand (Million tonnes/annum) |
China | 8,4 |
Europe | 4,3 |
U.S. | 2,1 |
Japan | 1,2 |
Taiwan | 1 |
Russia | 0,7 |
South Korea | 0,69 |
India | 0,54 |
Brasil | 0,36 |
Mexico | 0,3 |
Global Demand | 20,5 |
Today, we still see a backwardated LME cash-to-three month copper spread MCU0-3. This indicates that the supply of copper is still tight. As long as the Chinese economy doesn't have a hard landing in the near term, the prospects for copper are still bright.
Previously I recommended Capstone Mining (CSFFF.PK) in this article. I still think Capstone Mining is a great buy, especially today. Since I recommended the stock, the share price has come down to under $3 a share (which is at book value), due to concerns China may slow down. Considering insiders have bought Capstone Mining at $3/share, anything under this price level is a buy.
Disclosure: I am long CSFFF.PK.
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