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4/14/09

More Shakespearian copper thoughts

What is it with copper and Shakespeare anyway?
Excuse my personal mania here.

I don't like being a bear on things. It's much easier to be bullish and win friends and influence people and say what everyone wants to hear, because we humanoids are optimistic by nature and look for success, green lights, upwards movements, shiny happy people. But bearish on copper I must be. It's a nice time to quote a bit of Shakespeare, in fact:

This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.

The only problem is that Shakespeare put the words into the mouth of Polonius, a real interfering, medieval dumbass who got what was coming to him on the end of Hamlet's sword.

I digress. Today, this humble corner of cyberspace was sent this link to a report from Desjardins on base metals but headlining their call for copper to move back to $3.00/lb by 2010. Nicely done and all very bullish. Wise saws and modern instances all told in fact, and all very rounded and shinyhappy. The only problem is that I don't buy the argument.

  • One reason is that the numbers they use seem to be reverse engineered to fit their preconceived ideas .
  • Another reason is that this is exactly what clients of Desjardins would want to read (note bear talk above)
  • Another is the talk on scrap metal, which seems to be the latest bull meme doing the rounds. Sorry guys, tightening prices or not the scrap sector doesn't lead the market, it follows it.

He told the Financial Times he expected average (Chinese) urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.

“Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation,” said Mr Cao, known as one of the “three swordsmen” of the real estate market because of his influence as an official economist.

(By the way, that FT report is truly frightening and a must-read). So where's this uptick in end user demand coming from, folks? Detroit? Here below is what I wrote back to the person who kindly sent the link my way. DYODD, dude.

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That's an interesting call from Desjardins. I've been staring at that supply/demand table of theirs and something doesn't seem to add up...seems rather sweeping in its assumptions. esp for SW-EX production. Why should SW-EX jump 10% this year? I can't think of a single reason, in fact. The scrap tightening argument works, but scrap isn't that much of the market in total perentage, either.

Also notable how they hit supply/demand balance of 17.45MMT for FY09. Convenient and very bullish compared to other forecasts. Sure, ICSG is always bearish on this and has called a surplus every year for the last three years, but this time there's plenty of reason to believe we are in surplus.

Next: basic logic suggests that the Chinese stockpile buying is the reason we're at $2/lb. This won't last forever. Desjardins glosses over this by pointing to secondary manufacturing figures, but that's a small % of copper demand in China. Also, nothing is said about the world car industry demand here. That's a glaring error of omission because last time I looked the Detroit trio weren't thinking of upping production schedules...even Toyota is laying off.

The bottom line is that Desjardins THINKS or maybe even WANTS copper to rise and has reverse engineered its report to fit the desired conclusion. Or in other words, it's a pump. A more intellectual pump, perhaps, but it's still a pump.