Bill, This item on copper should come through to many as a segue from your earlier post "How Dem's might impact Aero & Defense, Fri., Nov. 10, 2006, 11:11 AM". That post had led me to consider the impact on demand for metals such as copper and aluminum ( and other strategic metals ) as it would seem that this week's election results are destined to form a turning point in defense spending...... and, hopefully, a lot less copper demand from this sector.

"Dr. Copper" has historically been a good "tell" on the economy, but I recently heard that if every household in China was to buy only one lightbulb today, all the above ground supply of copper would be used up. Does anyone know if that is true? If it is, then dear old "Dr. Copper" may not be the "tell" that I used to use it for.

TerryC,

It is conventional wisdom that the Democratic victory will hasten the end of the war and reduce defense spending. I would question this conclusion for several reasons. First, the President will likely continue the war no matter what. Kissenger is advising the President (!) regularly with the story that the reason we lost Vietnam was that the country lost support for the war because they realized it could not be won. He is telling the President to stay the course no matter what, never admit defeat, and always say victory is the goal. Also, the President is concerned about his legacy. The easiest road for him is to leave the hard decisions to the next President and blame the Dems for the defeat (as he has been doing already). The Dems in Congress only have the power of the purse, not policy. They will not pull the funding to stop the war with the troops in the field.

It is up to Bush to end the war, and he doesn't want to do it. The new Defense secretary is a neo-con too, which means so substantive change of direction, only window-dressing. We are in for more endless fighting.

This doesn't even cover a war with Iran, which the neo-cons seem to be gearing up for. War plans have been worked on since the spring.

Also, even if the Iraq war were ended or scaled down, the armed forces are broken. Tremendous spending will be required to fix broken equipment and lost equipment and redeploy forces.

The Democrats also have an opportunity to take the mantle of strong on defense away from the Republicans for the first time since the 60's. Cutting defense spending will hurt them on this issue.

My prediction is that Defense spending - on capital equipment - will not drop significantly for 5 years at least. Also consider that the Pentagon has been driving the reconstruction effort too (not the State Department!) so this part of the budget can be cut.

I'm long gold and mining, short Russell 2000.

hi, g034, I am from China.The person who made that comment must think Chinese people lived in darkness until recently (when its economy and its demand for materials were on the headlines).I can not figure out where is the copper used in a lightbulb. That is comment is not true.
Many uses of copper can be recycled. Today in China, as one of my friends told me,if you take one ton of the copper for recycle to a small smelter, the smelter can give you a ton of refined copper immediately, at a price of 1300 to 1600 Yuan,which is about $166 to $200! So, the demand is real, but the price of copper can be exaggerated to a great extent by the speculation.

As I watch the charts of copper price and copper stocks in LME, I found that the stocks level reached its low in July and actually went up since then. However, the copper price did not decline and traded in a norrow range until mid October.
In the meantime, zinc price had a big drop too today,although its warehouse stocks continued to decline. Do you think that zinc just had a sympathy drop with copper and will continue its advance? From the chart, the stocks of zinc is really a free fall.

SmallCapFan,
Allow me to interject in aide of g034's lightbulb comment as I don't think the comment was intended to offend anyone. I too have heard a lightbulb story but with the idea that if every household in China were wired for electric lighting the price of lightbulbs would be much higher, as would the price of copper. Your information regarding the price of scrap copper brings to mind a comment made by a Chinese friend from Guangdong who obtained an MBA in Canada but now works in banking in China. He commented that the reason cellular telephony took off in China is because whenever telephone cable was hung from poles in the daytime it would be stripped from the poles by thieves at night and sold as scrap. Wireless was an effective solution to the problem. Fortunately, there is presently no scrap value for optical fibre.

TerryC and g034, do not get me wrong. I do not have any hard feeling about what g034 wrote.It is just that kind of stories sound very familiar. Did we hear that there was no enough land for retirees' residence in Florida before? But we will have plenty of lots by now decades later. I sense the top from those stories.They all sound reasonable and fascinating.

Yes, looting is a problem not only to wires, but also to other hot commodities such as lumber,oil etc. The is a problem generated by the gap of have and have-nots. I do not have question regarding the demand from other infrastructure constructions, such as the development of power grid national wide, but housing is a concern because the information I got is so mixed. On one hand the housing prices in most cities keep rocketing, on the other hand, there is news about the vacancy built up quickly.
So when I was on a trip to China in late September, I observed the construction sites. In the previous tightening phase (from mid to late 90s), you could see the abandoned sites in many places. But this time, I saw none. I asked around, friends said the houses were sold fast. It does make me feel better about my position on miners. But, you know, it was just a ten days travel and I really did not see many places.
Thank you.

I still have not heard of any commodity shortages anywhere other than at the LME.

I am watching to see if more inventory starts showing up as metals prices drop (or at least stop going up).

This would imply to me that speculators, funds and others who have been hoarding the stuff are unloading some of their supply - and that the 'metals story' has been less a 'demand' story and more a speculative bubble.

If inventories don't rise significantly sometime between now and the next 6-8 months - this to me would have extreme bullish implications after any US slowdown ends.

... has China been hoarding copper again?

"The Beijing-based customs office said recently that warehouse inventories monitored by the Shanghai Futures Exchange rose 15% this week and that Chinese imports plunged 22% so far this year. Merrill Lynch, today, is telling clients its sees copper collapsing 47% by 2008."