Copper Carnage Continues - Bloodbath At China Open

Update: COMEX Copper trades $243.40

Heavy volumes in the futures markets have smashed COMEX Copper prices to as low as $251.90 as China opens. This is the lowest level for copper since July 2009... LME prices are as low as $5,500/mt... Blame OPEC! In fact - we suspect - blame massive rehypothecation hedge unwinds...

• *COPPER DROPS BELOW $5,500/MT ON LME
• *COPPER DROPS AS MUCH AS 5.7% ON THE LME

Total Carnage

This is not a normal China open...

As Bloomberg reports, the catalyst for this latest leg down appears to be World Bank global growth forecast cuts...

Copper tumbled below $5,500 a metric ton for the first in five years as a cut in the World Bank’s global growth forecast fueled speculation demand for raw materials won’t be enough to eliminate a supply glut.

Copper dropped as much as 6.6 percent and nickel slid 2.2 percent. The world economy will expand 3 percent in 2015, according to a World Bank report released today, down from a projection of 3.4 percent in June. The Bloomberg Commodity Index of 22 energy, agriculture and metal products slid to the lowest level since November 2002 yesterday after dropping 17 percent last year.

“The news everywhere is doom and gloom,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “Prices are going to keep sinking.”

Copper for delivery in three months on the London Metal Exchange dropped as much as $388 to $5,472 a ton, the lowest intraday price since July 2009. The metal was trading 6.1 percent lower at $5,501.25 ton at 9:54 a.m. in Hong Kong.

All other metals on the LME declined, with nickel dropping to the lowest since February 2014.

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Maybe commodities are on to something...

Naah - stocks are all-knowing...

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Copper's cost curve is coming under pressure...

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Crude is also under pressure...

Marc Faber: Gold will rally 30% in 2015

Gold on Tuesday took a breather after a strong start to the year with futures contracts in New York Mercantile retreating slightly to change hands for $1,232 an ounce, down just over $2 from Tuesday's close.

Gold is still trading at its highest since October 22 after jumping more than 4% so far this year. Gold hit a near four-year low of $1,143 early November.

Marc Faber, economist, investment guru and Wall Street stalwart, came out on Tuesday as the year's biggest gold bull, saying all asset classes except precious metals are overpriced and predicting a sharp move higher for the metal:

“I’m positive [that] gold will go up substantially [in 2015] — say 30%,” Faber, whose investment letter is called the Gloom Boom Doom Report, said at Société Générale’s global strategy presentation in London on Tuesday.

“My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”

Gold has tanked 35% since reaching an all-time high just above $1,900 an ounce in September 2011, making it one of the worst performing assets in recent years. In 2014, it lost 1.5%, following a 28% slide in 2013. So far in 2015, however, investors have taken a liking of the metal, with the front-month contract up 4.1%, outpacing gains for even a solidly performing dollar. (U.S. equities have been testing the waters on both sides of the break-even mark.)

“We simply have highly inflated asset markets. Real estate is high, stocks are high, bonds are high, art prices are high, and interest rates and short-term deposits are basically zero,” Faber said. “The only sector that I think is very inexpensive is precious metals, and in particularly precious-metals stocks.”

Faber, at times identified as “Dr. Doom,” singled out U.S. stocks as especially overvalued. Emerging markets, in contrast, could be on the cusp of another bull run, although investing in them in the early part of 2015 may be premature, he said.

“I don’t think they are that cheap. Valuations are not expensive, but they are not the bargain of the century. But I believe some time in the next six to nine months emerging economies will become relatively attractive.”

Gold, silver price rally: No convincing ETF investors

Gold on Monday continued to build on recent gains as sagging equity markets, a fresh slide in the price of oil and doubts about the strength of the US economy saw investors piling into safe haven assets.

In afternoon trade on the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands for $1,235.60 an ounce, up $19.50 or 1.6% from Friday's close.

Gold is now trading at its highest since October 22 and has jumped more than 4% jump so far this year. Gold hit a near four-year low of $1,143 early November.

Uncharacteristically silver trade was more subdued. March contracts rose 1.1% or $0.18 to $16.60 compared to Friday's close and near the day's highs. Silver is up 6.5% in 2015 after losing some 20% of its value last year.

Last week's meagre 1.7 additional tonnes of silver can hardly be considered a trend-reversal

Roughly 60% of silver demand is from industry, with investment and jewellery demand making up the remainder, and the silver price has been dragged down by weakness in other industrial metals like copper which is trading near five-year lows.

Despite a rally in precious metals this year, investors in exchange traded funds backed by physical gold continued to lighten their exposure and silver buyers have not returned to the market in big numbers.

Last week saw a small reduction in holdings and at 1,599.9 tonnes as at January 9, holdings in the dozens of gold-backed ETFs listed around the globe, are now down to levels last seen April 2009.

SPDR Gold Shares (NYSEARCA: GLD) – the world’s largest gold ETF holding more than 40% of the total – has been even harder hit with holdings falling to levels last seen September 2008.

Gold bullion holdings in global ETFs hit a record 2,632 tonnes or 93 million ounces in December 2012, but the outflows have been relentless since then.

Retail investors in silver took a different tack to gold investors last year, stocking vaults at physical silver-backed ETFs to record levels in October of 20,182 tonnes.

But the liquidation since then has been rapid (288 tonnes during the last week of 2014) and last week's meagre 1.7 tonnes addition for total holdings of 19,380 tonnes can hardly be considered a trend-reversal.

McHugh's Fearless Forecast for 2015: The Stock Market

As 2014 has closed, we want to present our view of where markets are headed in 2015 in a series of coming articles. Toward the end of this series, we will cover real estate and the economy, something slightly different than what we normally cover in our market reports, but something you may find quite interesting. Let's start by saying this: The year 2015 will be historic, with unusual events and high market volatility.

The Stock Market

We believe there will be at least one stock market crash in 2015 (a decline of 15 percent or greater, probably much greater than a 15 percent decline), with perhaps one or more mini-crashes (10 percent or more). We believe that the largest stock market decline in 2015 will be a crash, and that this crash will be underway (could last several weeks or months) within two weeks before or after September 14th, 2015. In other words, we see a stock market crash in the latter third of 2015. It could be huge, and could change the financial, political and regulatory landscape for years to come.

There is a convincing amount of evidence for this in this author's opinion. First is the multi-decade Jaws of Death pattern. It is finished or will be by the latter part of 2015, and warns of a mega-decline in the stock market, and an economic depression. I wrote a book about this (available at amazon.com) that many of you have read. The time will be at hand for the fulfillment of this stock market pattern in 2015.

The second convincing piece of evidence is a cycle pattern we follow that is rare and extremely correlative to stock market declines and economic downturns, pointing to a powerful economic and market collapse around September 14th, 2015. This cycle pattern was present for the 2008 and 2001 market plunges. It will be present again in 2015, the first time it has been evident since 2008. Then there is the Bradley model which is an astro cycle turn indicator which points toward a turn on September 23rd, 2015. We also have a Phi Mate Turn date scheduled for September 15th, 2015.

The multi-decade Jaws of Death stock market pattern is calling for an economic collapse and a market collapse. This is a Bear market for the ages coming, which we believe is already starting in stealth, masked by the artificial stock market rally whose main purpose has been to hide the truth about the underlying economy's collapse, including the unannounced disintegration of the middle class in America. Part and parcel with Bear markets are social strife issues. A negative psychological state of mankind.

One developing social strife that will have an enormous negative effect upon the stock market and the economy is the civil war that is breaking out in the United States between liberals and conservatives. It is time to call it what it is, a civil war. We see this in Washington's inability to govern and negotiate. We see this with our judicial systems' decision-making being driven ideologically, interpreting laws according to the justices' in power political views and personal values, with relativism and the ends justifies the means enforcement of American jurisprudence evident in many cases. The divide is wide and passions are at the brink of violence. Truth is being redefined as a point of view. The U.S. Constitution is being rewritten by court decisions and precedent cases that could be completely distant from what is written on that sacred piece of paper. The plain language of the U.S. Constitution is being ignored and replaced by pseudo intellectual hyperbole. This brewing civil war will be a contributing factor in the destruction of the economy and the stock market in 2015 and beyond, not to mention America's traditional values and way of life.

Do Stocks Always Fall After Crude Crashes?

Not always, but you will have to consider modern finance this time?

Modern finance

- Hedging protection
- Debt and derivatives blow ups associated with Oil companies.
- Percentage of economic growth lost verses benefit of cheaper oil.

As always timing is the factor, how much pain will be felt before we get the gain? The next 12 months will be rocky as the bad oil news flows through the market.

Chart: Crude oil on top, Dow Jones on the bottom.

Source readtheticker.com

Russia To Accelerate $3bn Of Ukraine Debt

Just 13 short months ago - two months before then President Yanukovich was ousted - Russia lent Ukraine $3 billion (by buying their Eurobonds). As Reuters reports, the terms of that loan included a condition that Ukraine's total state debt should not exceed 60% of its GDP. As of last month, based on Moody's estimates, Ukraine has violated that condition with a debt-to-GDP of 72% (and will likely rise to 85% of GDP in 2015).. and so, according to Russian finance minister Anton Siluanov, "Russia has the right to demand early return of this loan." With European aid 'contingent on major reforms' and possibly taking up to 1 year, this leaves the good old IMF (i.e. the US and European taxpayer) to bridge Ukraine's 'gap' and ironically bailout Russia.

As Reuters reports, Russia can demand early repayment of the $3 billion loan at any time...

Ukraine has violated the terms of a $3 billion Russian loan but Moscow has not yet decided whether to demand early repayment, Russian Finance Minister Anton Siluanov was quoted on Saturday as saying.

Russia lent the money in December 2013 by buying Ukrainian Eurobonds, two months before Ukraine's then-president, the pro-Moscow Viktor Yanukovich, fled the country amid mass protests against his rule.

The terms of the loan deal included a condition that Ukraine's total state debt should not exceed 60 percent of its annual gross domestic product (GDP).

Last month, rating agency Moody's estimated that Ukraine's debt amounted to 72 percent of GDP in 2014 and would rise to 83 percent in 2015. It also said "the risk of default is rising".

"Ukraine has definitely violated the terms of the loan, and in particular (the condition) not to increase its state debt above 60 percent of GDP," Russia's Siluanov said, according to Interfax news agency.

"So Russia definitely has the right to demand early return of this loan. At the same time, at present this decision has not yet been taken."

But, as Bloomberg notes, the European Union "support" could take a while and it is entirely contingent upon tough reforms for Ukraine...

The European Union is considering a further 1.8 billion euros ($2.1 billion) in aid to Ukraine to help the former Soviet republic overhaul its economy, which has been ravaged by a separatist conflict in its easternmost regions.

The European Commission, the EU executive, said the fresh loans, on top of $17 billion already pledged in the International Monetary Fund-led rescue of the troubled country, werecontingent on the Ukrainian government pushing through economic reform measures and fighting corruption.

The EU has provided “unprecedented financial support and today’s proposal proves that we are ready to continue providing that support,” Commission President Jean-Claude Juncker said today in a statement. “Solidarity goes hand in hand with commitment to reform, which is urgently needed in Ukraine.”

...

Disbursement of the aid, which must still be approved by the European Parliament and the EU’s 28 governments, will depend on Ukraine’s adherence to the conditions of the IMF program, which include fiscal consolidation, changes in the energy and banking industries, and other measures, the commission said.

This would be the EU’s third package of loans to Ukraine, following two totaling 1.6 billion euros approved last year. A final portion of 250 million euros from the earlier aid is due to be given within the first months of this year, according to the commission.

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So - while Russia 'suffers' under the thumb of plunging oil prices and a tumbling currency crisis, a simple decision to push Ukraine into early repayment could leave Europe - having paid out their entire Ukraine bailout to Russia - asking for moar help from the IMF (i.e. The US Taxpayer) to keep the 'crucial' nation state of Ukraine from default.

Copper price touches 63-month low

In early New York trade on Friday copper for delivery in March fell to an intra-day low of $2.738 per pound, touching levels last seen end-September 2009, after inflation data out of China renewed fears of a worsening economic outlook for the world's top consumer of the metal.

China consumes almost half the world's annual copper output and a worse than expected 3.3% drop in factory gate prices in December was interpreted as further evidence of inactivity in the country's real economy. While consumer prices showed a small uptick, producer prices in China have now fallen for 34 months in a row.

Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.  China's GDP growth is expected to slow to 7% in 2015, which would be the slowest pace since 1990.

The Chinese government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal

The bad PPI numbers were blamed on excess manufacturing capacity, particularly in China's heavy industries, a major factor in the 18% slide in the price of copper over the past year and the nearly 50% drop in iron ore.

The copper price has also come under pressure this week after Chinese authorities approved an export tax rebate of 9% for copper bars, rods and profiles, while increasing the rebate for foils to 17% from 13% to stimulate exports.

In a research note, Edward Meir, analyst at INTL FC Stone, says it points to uncertainty about domestic Chinese demand:

"Reuters cites Antaike as saying that the new rebate could push up exports of these products to a rather significant 100,000 tons a year. More importantly, it tells us that the government wants local industry to turn to exports if domestic offtake is not enough to sop up local metal."

The supply side picture isn't helping either. Forecast mine output growth through the year of 6% or 1 million tonnes and another 800kt in 2016 is a lot to absorb for the market and is the reason why most forecasts for the price in 2015 is below today's levels.

Falling oil, the top input costs for all miners bar those lucky enough to sit on copper oxide, could also have the perverse effect of keeping high-cost mines in the game for longer, further depressing prices.

That said, unlike iron ore where predicted oversupply this year is estimated as high as 175 million tonnes in a 1.3 billion tonne market, the copper industry is much more prone to disruptions.

Aside from the more typical disruptions associated with adverse weather, technical problems, power shortages or labour activity, copper miners are also dealing with generally higher costs due to falling grades requiring higher tonnage and rising impurity levels. The depressed price will also force companies to make tough decisions on any expansion or greenfield projects.

Image supplied by Glencore show Anibal Contreras clearing slag at the company's Altonorte metallurgical facility, northern Chile.