Thursday, August 20, 2009

Copper Stockpiled by Chinese Pig Farmers May Be Liquidated

From naked capitalism:
This story on Bloomberg, about stockpiling of base metals by Chinese farmers and housewives, highlights a type of speculation that observers in the West haven't considered deeply. Since these were purchases by individuals, sometimes in the form of scrap, it's hard to ascertain how significant a factor this activity has been. If nothing else, the expectation they will reduce holdings is a sign of a change in sentiment.

From Bloomberg hat tip reader Michael):
Copper, nickel and other base metals stockpiled by speculative Chinese investors including pig farmers may be sold when “market sentiment turns,” said Scotia Capital Inc.

A price surge and easy bank credit this year encouraged pig farmers, stock brokers and businessmen to buy copper and nickel for speculation, Liu Na, an analyst with Scotia Capital, wrote in a note dated Aug. 17,....

“These stockpiles are in ‘weak hands’ as speculators have no real use for base metals,” Liu wrote. “When the market sentiment turns, they are very likely to turn into quick sellers, especially when the bank’s money is involved.”...

China, the world’s largest metal consumer, uses around 5 million tons of copper and 400,000 tons of nickel a year. Shanghai exchange-monitored copper stockpiles expanded to 76,107 tons last week, the highest in two years.

“The scale of the speculative investment is hard to quantify, although some local observers put the number at some 200,000 tons for copper, and at 50,000 tons for nickel,” Scotia’s Liu wrote. “We regard these speculative behaviors as natural, and they will inevitably occur in a bull market, so we do not want to exaggerate the impact they have.”>>>MORE