December 27, 2013

With Chinese industrial output posting stronger than expected numbers recently along with a continued booming US housing market, demand for copper should be strong in the near term.

Estimates from this spring for the potential growth in the Chinese economic miracle were falling across the board and expectations were souring. In addition, stepped up mining efforts have contributed to a slight supply surplus in the commodity this year. These two issues helped lead to a severe drop of nearly 20% in the price of copper since the beginning of the year.

But, it has been growing more apparent that the negative feelings that were pervading the market in regards to China were overdone. Though China will not be posting the mind-boggling 20% growth numbers anytime soon or possibly ever again, the growth that the country is still seeing is not insignificant, and definitely keeps China in the growth-economy category.

With a potential for a band of 5-10% in sustainable annual growth in the economy, Chinese copper demand should continue to grow as well. In fact, over the next 6 years, global copper consumption is expected to rise as much as 40%, to 27 million tons. Unlike the price of gold, which could suffer in a stronger economy with less Federal Reserve quantitative easing, copper is a commodity driven by stronger global industrial demand and emerging market growth.

If Spain starts seeing a real sustainable housing price rebound that spreads to Greece, that could add an especially strong jolt to the copper market. Spain recently posted its first positive GDP number.

Alexander Fleiss serves as Chairman and Chief Investment Officer of Rebellion Research Partners LP, a Global Macro hedge fund and financial advisory that invests across all asset classes and is ...