You have heard about Murphy’s Law: "Anything that can go wrong will go wrong."
We seem to be in the midst of learning all about Murphy’s Law in the metals market -- Over, and over again.
No need to go into the details here, we’ve all heard the news, seen the headlines, and watched the talking heads provide their analysis of what is going on, and more importantly, what the future may or may not bring.
It never ceases to amaze us – for several months now we have focused on the disconnect between weak prices and a pretty good fundamental environment. Indeed, each and every chart shows falling inventories, with prices also falling.
For whatever reason though, it never occurred to us to look at inventories in total. Not that it means anything in and of itself, but when you see it in chart formation, it does prompt one to wonder what the heck is going on. Take a look at the chart below and you quickly see what we mean.
Back in June 2013, combined inventories of copper, aluminum, lead, tin, nickel, and zinc (indicated in the red line) totaled 8.75 million metric tonnes (mmt). Last week those same stocks stood at just 2.40 mmt. Thus, over 5 1/2 years, inventories have declined 6.35 mmt, or 73%, and prices essentially said, "Ho Hum."
To keep things in perspective, aluminum represented the vast majority of inventories over the entire time frame. Also, we can’t help but think QT (quantitative tightening) -- not to be confused with QE (quantitative easing) -- has something to do with what is going on. But we can’t even begin to try to understand how it may be doing so.
Nevertheless, this one chart serves to remind us that while things are not great at the moment, and may get worse before they get better, they will indeed get better at some point.
Further, a few months ago, back in June to be specific, we postulated that copper would see $5.00 per pound, without saying when it would get there. What do they say -- you can forecast prices, or you forecast dates, but don’t do both together.
Despite the doom and gloom we are currently experiencing, we stand by this optimistic outlook.
A frequent contributor to Electrical Marketing and Electrical Wholesaling, John Gross is publisher of The Copper Journal and one of the nation's leading experts in metals pricing. If you would like to learn more about how to manage your wire and cable inventory in this volatile market environment, email John at by clicking here or call him at 631-824-6486.
