YWR: Killer Charts
Disclosure: Personal views only. Not investment recommendations.
I’m always interested in the situations where ‘the dog doesn’t bark’.
In this case if I were to roll back the clock to 2017 (pre-COVID, pre everything) and tell you China was going to have a property crash and 30% of all China property bonds would default, what would you say was going to happen to copper?
Obliteration right? We all know about copper’s exposure to the China property bubble. 40% of copper demand comes from China, bla, bla, bla.
Well, in May 2022 China property default rates were on track to hit 31%. By the end of 2022 the actual default rate hit 45%!
And where is copper after 45% of Chinese property bonds need to be restructured?
Near the highs at $4/lb.
That’s a dog that didn’t bark.
Other non barking copper dogs you can include:
a move up in US interest rates to 4.75%. High interest rates are supposed to kill commodity prices.
a commercial real estate banking crisis in the US. I’ve already written what I think of the banking crisis theme (Why it’s not 2008 again).
Despite Chinese property distress and a US slowdown, metals inventories are at record tightness in terms of days of inventory.
This is the kind of inventory level which can launch big moves.
Goldman Sachs thinks the copper market is already in deficit and it could continue for years.
It’s also interesting that with inventories at record lows, China investment is rebounding.