Wednesday, August 22, 2012

Simon Hunt on Copper: The Illusion of Demand and the Reality of Consumption (21Aug12)

Simon Hunt Strategic Services knows copper.
From Mineweb:

Simon Hunt believes that copper is no more than part of the money game at the moment.
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GEOFF CANDY: Welcome to this week's edition of's Metals Weekly podcast and joining me on the line is Simon Hunt - he's the founder of Simon Hunt Strategic Services. Simon there's been a lot of talk in recent weeks about China, about the slowing down of the Chinese economy, perhaps the end even of the commodity supercycle - what is your view in terms of where we sit within the commodities complex? Is this the end of the commodities supercycle or is this just one phase of a broader view of what's going on in China?

SIMON HUNT: There are two parts to the answer. The first part is that China is in a transition to slower growth. It is one that is recognised by the incoming government. It is based on a simple matrix of demographics. The working age of the population times propensity to employ, multiplied by productivity.

That gives your non-inflation trend growth rates of any country. So if you work the maths out for China the trends growth rate is going to be around 7.5% till about 2016 and 5% odd for the next five years, and then 3.6% up to 2021. That's not the end of the story. The focus is going to be much more on light industry and less on heavy industry. So basically not only from a metal point of view, not only is growth going to slow, but your intensity of growth is going to slow and then if you... So just to give you one simple example - take copper contained in power cable, that's been growing at around 10% to 12% a year for the last 15 years but in talking to a major power cable producer last month, he's talking terms of low single digit figures. That's a massive change. That's just quoting one example.

Now so the first part of the answer is China. The second part to ‘is this the end of the commodities supercycle, depends on how you see the world economy performing over the coming decade. There are people who say we're going to be in a highly inflationary era and therefore financial markets will continue to support metal prices like copper. Our own view is that we risk having an inflation breakout next year. Whether that risk becomes a reality I think depends upon the results of the American election, should Obama win that election then I think you're going to see a major run on the dollar. That will support the commodity complex. If Romney gets in, I think you're going to see a completely different set of monetary and fiscal policies. That will then precipitate the end of the commodities supercycle....MORE