Dividends and Copper on the way up, but with many ifs

In the basic economic texts, the basic supply demand curve is learnt often guns vs butter. In many industries supply demand is the key to understanding how the industry works in terms of costs. One of the easiest ways to see how the supply demand graphs work is with basic commodities which trade on the LME (London Metals Exchange) or the COMEX (The Commodity Exchange). On these exchanges commodities are traded by those in the industry who want delivery or users and speculators trying to figure out whether demand or supply will be the most important aspect of the year and do not want delivery.

In an article by Mai Nguyen of Reuters, one of the industrial world’s basic materials is copper. The metal is very good conductor of electricity and heat which means anyone living in an urban environment is dependent on the uses of copper. The biggest country which uses copper to produce products is China. This means those trading copper watch the Chinese demand very closely – now only is demand up or down, but how sustainable is it?

In recent years, China had a policy of closing its country down because of COVID and due to its government structures, it had the ability to enforce the closures. China is reopening which automatically means demand should go up because the factories can be reopened. With the shutdown, not only less demand was seen, less copper was imported which means the stock piles of copper are down. In the bonded warehouses the companies held 4 days of global consumption rather than the normal weeks. That alone should produce greater demand to rebuild the stockpiles.

In China, the biggest holiday is the Chinese New Year where millions of people have family gatherings, and many are held at their ancestors’ hometowns. The travelling is good for hospitality and tourism, not so good for industry production. However, after the Chinese New Year celebrations are over, China tends to move towards normal production and then true demand will be seen.

Linking to dividend paying stocks, in the commodity markets it is easier to see supply and demand and the price of the commodity. In every industry, supply and demand plays a role in prices which means translates into public consumption. If the industry you invest in has fewer players in the market, it is easier to determine how they are expected to do. If expectations are reported and the company beats or exceeds expectations, there is little reason to sell or do. If the company does not meet expectations, more homework is required to why.

There are more questions than answers, till the next time – to raising questions.


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