2009-04-16

Got Copper?

Ambrose Evans-Pritchard says China's copper buying exceeds its industrial needs.
Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

Copper has a very nice looking chart thanks to that buying. Here's iPath Copper (JJC), an exchange traded note that tracks a Dow Jones-AIG index.


China's move makes sense on several levels, as explained above. They can use the metals, but it also creates the basis for a hard currency that could eventually lead to the Chinese yuan replacing the U.S. dollar, euro, or Japanese yen as the global reserve currency.

Historically, China relied heavily copper for coinage, and later had a silver and copper system. Wikipedia has a good summary of copper coins in Imperial China:
As part of the Unification of China, Qin Shi Huang (Chinese: 秦始皇; pinyin: Qín Shǐ Huáng, 260 BC – 210 BC) abolished all other forms of local currency and introduced a national uniform copper coin based on the coins previously used by Qin. These coins were round with a square hole in the middle which remained the common design for most Chinese copper coins until the Twentieth Century. Due to the low value of an individual coin, the Chinese have traditionally strung a nominal thousand copper coins onto a piece of string.
More at the link.

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