Copper To A Lifetime High, But May Fall Warns Dr. Faber

Copper prices soared to a lifetime high despite signs of global demand growth weakness, rising inventories and threats of the Chinese government to dump its reserves into the global market.

Dr. Marc Faber in his latest outlook notes that the declining rate of change of Global Currency reserves and crude oil demand may presage decline in global economic growth, emerging market stocks and industrial commodity prices.

Dr. Copper On A Tear

He also warns that anything could trigger a steep drop in copper prices and expects copper to decline by as much as 40%.

Copper inventories in the warehouses of the Shanghai Futures Exchange jumped another 8,594 tonnes to 73,434 tonnes in the week ended Thursday. That followed a rise in stocks of 31,975 tonnes in the previous two weeks, according to Reuters.

London Mercantile Exchange Copper stocks have also climbed from its recent record lows.

Moreover, the Chinese government has threatened to intervene to contain the price increase of copper. Last week it sold about 40,000 tons in China and has vocally threatened to unload more in London. According to MSN Money Central, China's State Reserves Bureau said this week it would auction up to 20,000 tons of spot copper next week and potentially sell 100,000 tons to try to suppress prices.

However, traders are taking the Chinese threats with a grain of salt. According to MSN Money Central “Many copper participants questioned the normally secretive SRB's intentions and thought the bureau was trying to quell the red metal's momentous rise by jawboning it down.

"It certainly feels like that's what they're doing," said a New York dealer, pointing out that while other regions were selling copper on the SRB's announcement on Wednesday, traders in China were buying it.

"And that made a lot of people very skeptical," he said.”

If Dr. Faber’s projection that world growth is indeed slowing down then in the coming months demand for copper should slowdown too. This means that current prices could have been fueled by speculative funds riding on the coattails of momentum. Hence it would be a propitious time for producers to go on an offtake hedge, considering that copper maybe peaking.

As for Copper investors, David J. DesLauriers of Resourceinvestors.com has this to say, “All of this to say that even if copper falls back to $1.80 or $1.60 or $1.40, it won’t matter, and shouldn’t make a difference to investors because none of these companies saw their shares rally on the way up anyway. Of course, knowing the market, the small producers, near-term producers, and developers will probably get beaten up nonetheless on the way down.”

“It is an unfortunate situation to find in which to find oneself, but companies who only produce copper as a by-product don’t need to share the same discounted-valuation fate – they should hedge, it is the only way to force analysts and the market to ascribe the value.”