THE COPPER JOURNAL Prepared by J.E. Gross & Associates, Inc.
The Three Keys
(November 15, 2000) More often than not, in studying the market, our focus of attention is directed at fundamental and technical analysis. Without question, these two elements, individually or in conjunction, are the guideposts along the way. Indeed, no one would argue that in the long run, the market is ultimately driven by supply and demand. The other school of thought, however, found is in technical analysis and is built upon the belief that all the market information is in the price and as a result, price charts are a true reflection of the market. Further, the pure technical type doesn't even want to be bothered with fundamental analysis, as they don't want to be confused by the facts. At the end of the day, there is an element of truth to both approaches, but neither is without flaws. This brings us to the third and most elusive key necessary to study the market. And that is perception. For sure, it is neither here nor there; does not lend itself to mathematical calculation; flies in the face of fundamental and technical analysis and is subject to change at a moment's notice.
We dwell on the point of perception now, because we lack any better explanation as to why the market continues falling, while the fundamentals tell us it should be rising. But this isn't a new or unique situation--we've been here before.
If you have it nearby, take a look at the price and inventory comparison chart, and focus on the 1984-1986 period. The fundamentals were good, if not great, but because we were still in the mindset of high interest rates and low prices, we couldn't get out of our own way. Every time the market tried to go higher, our perception was so negative that rallies kept getting sold into, thereby keeping a lid on the market. And it continued until early 1987, when the day of reckoning finally came. At first it was gradual, almost imperceptible, but ultimately, the market exploded like an untended pressure cooker. The lesson learned is that the longer the market ignores the fundamentals, the greater the reaction when they are finally recognized.
Global Production And Consumption Of Refined Copper
First Seven Months Of 1999 Versus 2000
(Thousands Of Metric Tones)Production 1999 2000 Change Percent Africa 259 229 -30 -11.6% Americas 3733 3531 -202 -5.4% Asia 2302 2625 +323 +14.0% Europe 1818 1880 +62 +3.4% Oceania 219 278 +59 +26.9% Total 8331 8543 +212 +2.5% Consumption 1999 2000 Change Percent Africa 66 76 +10 +15.2% Americas 2360 2458 +98 +4.2% Asia 3131 3419 +288 +9.2% Europe 2554 2870 +316 +12.4% Oceania 102 112 +10 +9.8% Total 8213 8935 +722 +8.8% Net +118 -392 -510 Refined Stock Summary Dec 1999 Jul 2000 Change Producers 243 232 -11 Merchants 57 62 +5 Consumers 211 226 +15 Exchanges 937 647 -290 Total 1448 1167 -281 Where Do We Stand Now?
November 15, 2000 J.E. Gross & Associates, Inc. P.O. Box 460, Huntington, New York 516-271-9457
- The downturn deepens. Copper continues losing ground, as December fell to a five month low of 81.60¢ last week, thereby shedding more than 12¢ from the 94¢ high posted in September. Although the market exhibited its intention several times to recoup some of its losses over the past few weeks, the attempts were weak willed at best. This is particularly disheartening given the overall deficit in copper, as well as the continued decline of inventories. That said, copper wasn't alone in turning lower, as the base metals complex overall is off, as if to remind us that, as the tide goes, all the boats go with it.
- In the short term, light support is found initially at the 82¢ level basis December, then at one-cent increments down to the 77¢ low back in April. Similarly, resistance is in evidence at one-cent intervals right up to the 94¢ high. Although we don't want to argue with the market and recognize and respect its reputation of infallibility, to the extent it continues falling in the face of decent fundamentals, we suspect the upturn--whenever it occurs, will be that much more forceful. Further, the greater risk, we believe, remains above, rather than below the current market.
- The Base Metals Barometer averaged 91.3 during the first half of November, it's lowest reading since September 1999.
- Exchange warehouse stocks fell 16,400 ST since the month began, to 467,560 ST, representing the lowest level since September 1998.
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