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Monday, May 07, 2007

Metals, the Bears and Bubble-Talk

This story on Bloomberg this morning seems very bearish for metals ...
Metals Bubble Poised to Burst on Increasing Supplies (Update3)

May 7 (Bloomberg) -- Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.

On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group Inc. to JPMorgan Chase & Co. to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.

XX Ah, but see how the bubble is presented as fact as first, then we find out it's "warnings" from different Wall Street firms? And how correct have these firms been in the past ...

To be sure, many of the bears were wrong so far this year. An investor who acted on the advice of JPMorgan, the third- largest U.S. bank, missed gains of 67 percent for nickel, 30 percent for copper and 41 percent for lead, the best-performing commodities in the 26-member UBS Bloomberg CMCI Index.
It IS true that, as Stockholm-based copper producer Boliden AB is quoted as saying in the story, that world supplies of copper outpaced demand by about 50,000 tons in the first quarter. Global output rose 8 percent in the period, twice as much as demand, the company said.

However, it's also true that the Chinese withheld buying copper in the first quarter to try and manipulate prices. How is that working out for them now ...

Maybe not so good.

I'm not saying the bears are wrong. I'm saying that Bloomberg gives far too much weight to one side of the story here. Maybe prices will go down. But to do that, the market will have to overcome the tremendous demand we are seeing in China and are starting to see in India. Those bullish fundamentals haven't changed.

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