Copper tests highs

China has been growing with a whopping yearly GDP of at least 10% for the past 4 years. Although voices questioning its stability are sounding louder and louder from both sides of the fence. From Treasury Secretary Paulson’s last week comments to the G7 Finance Ministers statements, all seem to agree with Premier Wen Jiabao’s statements, "growth is unstable, imbalanced, uncoordinated and
unsustainable."

This unrelenting Chinese growth is propelling investment in factories
and real estate, fueled mainly by exports. But the bickering crowd also
agrees that the solution to the imbalance is to foster local
consumption, which is already showing signs of a rude awakening…

From Bloomberg’s Nipa Piboontanasawat article of April, 17:

Urban investment in factories and real estate probably
climbed 23 percent in the first three months from a year earlier,
the survey showed. A National Development and Reform Commission
statement today indicated the jump was 25.3 percent. That
compares with 13.8 percent in December and 24.5 percent for all
of last year.

Either way, through exports or local consumption, growing factory and worker needs will continue to fuel an expansion of the Chinese landscape…  requiring more energy… a more extended and powerful electric grid… more buses, trucks… roads… an improvement in worker standards… more cars, houses, appliances…

And, they are relying on… copper. The following $Copper index weekly chart seems to confirm its strong demand –prices are climbing rapidly to their historic highs.

Copper070417

$Copper index. Source: Stockcharts.com

We may see the Chinese economy stall due to a very possible slowdown in the US, due to growing US protectionism or Yuan appreciation, implying both higher import prices, which will translate into inflation… which will hamper US consumption… which would be aggravated if the Chinese retaliate by putting a clamp on their US Treasury purchases…to stagflation.

With a more valuable Yuan, we may also see the Chinese economy countering and softening this effect with an increase in their imports –especially if their source is the US– and local consumption.

In the meantime, LME copper inventories continue their depletion, while prices soar to test $3.94. This high is a resistance. If this level is breached easily, my buy order will be waiting close to $4.33, the breakout level at the 25% channel envelope. (Checkout this previous post for background on the channel breakout method).

My expectations are that we will see a bounce, a second knock on the door of the $4.00 resistance level.  We may have to wait a while… If not, I’ll have my order waiting for prices clear away from the resistance turbulence zone, as indicated.