Copper, FCX and China. Feb 2010.

Lately it would seem that China is the source of all growth in the World, and consequently I was a little surprised that it was not Jim Rogers or some other guru to which this growth could be attributed. After all China has been around for a few thousand years whereas Jim Rogers only recently moved there. Also it was interesting to note that not everyone seems to agree, in particular a fellow by the name of David Threkeld who runs his own metals trading firm (see   http://www.cnbc.com/id/35313321  ) and believes that , the metal, will be the next bubble, or is the next bubble. His view appears to be based on the simple fact that the marginal cost of producing the stuff is $1 and we all know that miners are undisciplined and will , at some point, produce to their hearts content. Also , I might add, the Ivanhoe mine in Mongolia ,IVN, is so large that it will have a distorting impact once it does start producing. In the meantime their is the riddle of what happened to 2 mln tons of the stuff.

More interestingly, in a  report entitled “Technical Outlook – Commodity Calamity” that  came out Feb 1 , 2010 by no one less than RBC Capital Markets’  excellent commodity group, the suggestion is made that looking at copper the trend reversal may now dent the growth outlook. Very interesting as these guys are no slouches. Here is the copper chart, not as traded on the LME London Metals Exchange, but by way of the front futures contract.

COPPER Feb 15 FCX Feb 2010

Also , for comparison, we show , the largest producer operating in Indonesia (Greenberg). Notice that both display distinct corrective up moves from the March low. Copper itself seems even to say that nothing had happened. In the meantime ALL technical indicators are terrible and perhaps the guys at RBC are right, and perhaps even David Threkeld. If nothing else get defensive with virtually all commodities!. The arrow down in the copper chart is merely a possibility, it does not have to go that far to cause a lot of damage.