By Jim Williams
Have you stopped to think about the correlation between the rising price of copper correlating with the increasing threat of nuclear war with North Korea? While that may seem like a stretch, if you think about it, it makes sense.
China has been stockpiling copper recently. So much so that the red metal recently hovered around four-year highs. Could they be pulling in as much copper as possible (and other commodities) as a precaution, just in case war breaks out with neighboring North Korea?
The thought of a nuclear war is unnerving enough, but the logistical nightmare for importing and exporting for China would wreak havoc on the global economy.
"I believe that the recent rally in raw material prices is at least partially the result of the increase in tension in the Korean Peninsula," states Andrew Hecht, of Seeking Alpha. "The prospects for logistical problems in the region and the possibility of trade wars (or worse) could mean that China is taking the opportunity to stock up, just in case, over recent weeks and months. If that continues, prices could move a lot higher for many minerals, metals, energy products as well as other commodities."
The fact that China has signed off on U.S.-led sanctions by the United Nations has undoubtedly created a barrier between China and North Korea that will most likely impact both countries' economies, as well as global markets. In fact, China has already stated it will pay the biggest economic price from the new UN sanctions against North Korea, but will always enforce the resolutions.
We will keep an eye on the tense situation and its impact on copper.
Other – More Traditional – Influences on the Red Metal
Despite the major threat of nuclear war hanging over global markets, it is still business as usual. Copper opened this morning just below $2.90 a pound. The red metal remains an indicator for the industrial commodity. And China remains the key player in the game that is copper.
China kicked off its July economic reports with foreign exchange reserves yesterday, as the country produced a rare miss in July with annual growth levels undershooting expectations. Exports from the world's second-largest economy rose 7.2% from a year earlier, while imports expanded 11%, resulting in a trade surplus of nearly $47B.
Today it is all about trade. Wednesday the focus will be on inflation. Bank lending numbers for China are expected later this week while industrial output, retail sales and investment readings are scheduled to be released next week.
"Buyers seem to once again be positioning themselves for an expected improvement in demand, and thus prices, as we move forward into September and October," said Kingdom Futures in a report.
"If copper climbs above the $3 level and continues to post gains over the second half of 2017, watch out," concludes Hecht. "A rally in the commodity that diagnoses the state of the global economy will have far reaching consequences for other raw materials and markets across all asset classes."