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China Demand Driving Bullish Reversal For Copper Prices

Commodities / Metals & Mining Apr 24, 2009 - 06:53 AM GMT

By: Money_and_Markets

Commodities

Best Financial Markets Analysis ArticleSean Brodrick writes: I have a chart of copper that I MUST share with you. Despite the bearish news on the global economy as a whole, copper is strong and getting stronger …

You can see that after plunging last fall, copper has spent months hammering out a rounded bottom. This kind of pattern is often an indicator of trend reversal. In this case, the trend would be reversing from bearish to bullish.


Then, last week, copper prices climbed to the highest level in nearly six months after five straight weeks of gains — its longest rally in a year. Copper’s move higher has come on higher and higher volume. That’s very bullish!

Weekly chart of copper shows that its steep decline has ended in a rounded bottom ...

The next test of copper comes at 2.27 — near-term overhead resistance.

There are two pieces of news that could be driving this move … both coming from China.

China’s Stimulus Package is Working …

On Saturday, Chinese Premier Wen Jiabao said that his country’s stimulus package is working and the economy is “better than expected.”

More infrastructure projects in China will mean greater demand for copper.
More infrastructure projects in China will mean greater demand for copper.

While Wen cautioned that complete recovery will take much more time because the global financial crisis continues to spread, he pledged to pull the country out of its slump by, among other efforts, expanding domestic demand and building major infrastructure projects.

You know what more infrastructure projects and consumer demand in China would mean — more demand for copper. In fact, it’s already happening …

China is buying copper hand over fist. Copper stockpiles in warehouses monitored by the London Metal Exchange dropped to their lowest levels since February 2. The reason: Chinese imports of refined copper topped 300,000 tons for the first time in March.

At least 75,000 tons of that copper is going to the government’s State Reserve Bureau stockpiling agency. China plans to stockpile aluminum, copper, zinc and lead for its metals reserves over the next three years, according to a report from the China Nonferrous Metals Network on Friday.

The report cited Jia Mingxing, vice chairman of the China Non-ferrous Metals Association:

“The State Reserve Bureau plans to buy 1 million metric tonnes of aluminum, 400,000 tonnes of copper and (a combined) 400,000 tonnes of lead and zinc over the next three years.”

What’s more, Chinese imports of iron ore are also soaring, hitting a record in March.

So is China just stockpiling for its infrastructure projects, or is it something else?

Diversifying Away from Treasury Notes and Bonds

China is seeking hard assets, such as stakes in copper miners and their projects.
China is seeking hard assets, such as stakes in copper miners and their projects.

One theory is that China is attempting to diversify its investments away from U.S. Treasury notes and bonds. It is instead seeking hard assets, such as copper stockpiles and stakes in miners and their projects. Examples include Chinalco’s proposed deal with Rio Tinto and the China Minmetals deal to buy most of Australia-based OZ Minerals.

But there’s a second theory that goes beyond that …

An analysis from Britain’s Daily Telegraph speculates that China could be ready to end its dollar dependence and go on a “commodity standard.”

Nobu Su, head of Taiwan’s TMT group, which ships commodities to China, told the Telegraph that Beijing is trying to extricate itself from dollar dependency:

“China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years.”

My Red-Hot Commodity ETFs subscribers are already playing this move in copper — with open gains on the PowerShares DB Base Metals ETF (DBB). If you’re thinking of buying it for yourself, remember, it’s just as important to know when to get out as when to get in.

And my Red-Hot Global Small-Caps subscribers are onboard with shares in a sizzling hot copper producer AND a foreign ETF that should ride the wave in metals.

It’s impossible to know what China’s intentions really are when it comes to copper … gold … oil … or other natural resources.

But one thing’s for sure — there is plenty of profit potential in China … and copper. And if you can find where they intersect, you can rake in some truly extraordinary gains.

The Next Profit Revolution is Starting … Now!

And that brings me to another great piece of news I would like to share with you — the profit potential in our new, complimentary daily e-zine: Uncommon Wisdom.

That’s the new, free e-zine publication that I am spinning off with my colleagues Larry Edelson and Tony Sagami.

It will focus on global profit opportunities — in China and around the world. It will seek out the incredible bargains in natural resources of all types … gold, crude oil, copper — and more. Our new e-zine’s motto is “extraordinary insights for growing your wealth.” We hope to deliver that and much, much more.

Uncommon Wisdom is where Larry, Tony and I can focus all of our combined experience ferreting out unique profit opportunities for you — without regard for borders.

We take a boots-on-the ground approach to investment opportunities, often travelling and reporting to you from the front-lines. It’s also a place where we can sound off on subjects that can contribute to making you healthy, wealthy and wise.

Why the new e-zine? Simply because Larry, Tony and I need more time to dedicate to you, and Martin needs more time and space in Money and Markets to bring you more of his unique views.

So, my column here at Money and Markets is coming to a close. But don’t worry, you’ll now be hearing from me twice a week through Uncommon Wisdom. I’ll have a new video for you every Tuesday … and a new column every Friday. They’ll be stuffed full of the charts you like and the insight you expect.

You can read Tony’s Uncommon Wisdom column on Wednesday and see his new video on Saturday. And Larry kicks the week off with a new column every Monday and a fresh new video every Thursday.

All this, sent directly to your e-mail inbox each day before the market opens!

Remember, this new e-zine is complimentary. All you have to do to be sure you don’t miss a single one of our columns is to click here and subscribe to Uncommon Wisdom.

I hope to see you there.

Yours for trading profits,

Sean

P.S. My blog has also moved. Remember to check out my daily updates at http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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