Every bit the year began every sell side analyst was banging the table calling for the long reflation trade, and the long infrastructure stimulus induced merchandise, which meant being long most commodities that Red china and the rest of the world was demanding like copper, iron ore, steel and other construction related materials.
The rally started in hostage back in November 2020, after the Biden presidential election win where the price rallied from $6500/tonne all the fashion to $10500/tonne in May of this year. Since and so it has stalled, and is now showing signs of fatigue. This is despite the roaring reopening of U.S. and European economies every bit they vaccinate the majority of their population.
Since last year we take continuously been hearing most all the decarbonization efforts and infrastructure spending boom not only in China, just in the U.S. and Europe as well. It started as governments embarked on fiscal policies aimed at generating GDP growth quick and fast to jump start their respective economies out of a recession. Merely this spending splurge has taken prices of most materials upwards to some very uncomfortable levels.
Given coronavirus induced shutdowns and delays, this has exacerbated the supply side to evangelize on time and meet the requirements. One can run across the global shipping and container prices heaven rocketing and showing no signs of ease equally port congestions remain tight. Simply put, demand is too much at a time when supply is just not able to friction match. Chile, the world's largest copper producer, is facing short term disruptions from labor negotiations and long-term disruptions from planned increases in mining royalties.
Just starting this yr, China started taking a different path. It has started easing its credit growth smash, taking its human foot off the pedal a scrap. This can be seen in M2 and Chinese credit impulse information. Just today we saw the highest PPI going back to September 2008, but CPI lagging, which implies that Beijing is not allowing its companies to pass all the costs to their consumers. If it did, that would kill the consumer that is fragile to begin with post the pandemic. But sooner or later on, if they are unable to pass through college costs, corporate turn a profit margins will outset to get hurt.
Every bit China growth slowed in the first half of 2021, U.S. and European demand has been quite strong, and this has offset some of the weakness in Asia. This is i of the reasons why copper has held up quite well. Nosotros know the Biden/Congressional talks take broken down once more every bit they cannot concur on an infrastructure spending bill, which has likewise been ane of the key reasons boosting the copper cost college in the near term.
For now, funds are non really that excited for copper either. They take lifted their net long positioning on CME copper from a mid-Apr low of 38,273 contracts to 66,421 as of a recent Commitments of Traders Study a few weeks agone. Fifty-fifty Chinese buyers are bankroll off now. The Shanghai Metal Marketplace Tangshan copper premium SMM-CUYP-CN is a closely watched barometer of China's physical import demand. It is currently trading at $38.50 a tonne, the lowest print since 2017.
Now that financial assets take more than recovered back to last year's level, there is a case to be made of less QE going forrard, lest inflation gets totally out of control. The job market is showing signs of growth, it's but people are non incentivized to look for a job, and why should they when Uncle Sam is handing out gratuitous stimmy checks. Information technology remains to exist seen what the Fed does, merely the time is cartoon almost for them to take their pes off the pedal. We all know the structural example for the deficit in copper, and how it is ane of the tightest commodity markets benefitting from EV, renewable free energy and clean energy transition. But, as always, timing is critical.
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