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Copper, Nickel Crash

Published October 13, 2004
Written by Alec Nevalainen

If you were long copper/nickel/zinc this morning, and decided to take the day off, you were royally screwed today. The base metals came crashing down like a space shuttle.

BHP Billiton said they expect a surplus by Q3 2005. I'm scratching my head a little bit about this one. Why would a mining company come out and say, "Oh, um, we expect the metals we're mining to be overly abundant by next year...so go ahead and take all of this money out of my wallet. Get enough? No? Well, we expect copper to be obsolete in say, oh I don't know, the next 4 hours. I hear they're making great strides in plastic. Now there's a future! Plastics, boy...plastics."

Maybe they're trying to put a positive spin on a dire situation. "No shortage here, no intervention in the market needed," I imagine them thinking. "That whole warehouse stock situation, where we're at 5000-year lows, that can be ignored. No problems here, move along."

Considering there have been approximately 5 billion suspected government interventions in the commodities market (give or take a billion), I guess I'd put a positive spin on the situation as well. To be fair, warehouse stocks did improve a few thousand tons in London today, but I don't think we've seen a trend reversal.

Back to today's market action. Zinc closed a hair above $0.46/lb. Nickel barely closed above $6.00/lb, losing over a $1.16 today.

Today's copper chart looks like someone died on the exchange floor.

[Most Recent Quotes from www.kitco.com]

Phelps Dodge was downgraded by somebody (does it really matter anymore), the stock is down almost 8% intraday. Probably a buying opportunity at the end of this week after the tree stops shaking.

Alec Nevalainen

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